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Ask Tony
Friday, April 6 th, 2007
by Tony Golan
Chief Technical Analyst
StockProfit.com™
Question:
Tony,
I used to listen to you on radio in the Phoenix Area from time to time and generally found your program interesting.
Your recent recommendation on GRA caught my attention and I'd like to ask for some further response on this stock.
- GRA has a very high PE ratio, i.e. ~106. That seems to be in the risky area and wonder what your take is. If you agree, how would you mitigate this risk or rationalize it?
- Since Aug. 2006 GRA has been solidly above the 50 day MA having once declined close to it on or about Mar. 19. Isn't there a good likelihood that would repeat?
- If GRA is a 'buy'
- should one buy a call?
- should one sell a put?
- If one does buy or currently hold GRA how much stop loss room do you envision, 10%? less? more?
Looking forward to your reply.
Thanks,
Norbert.
 Zoom
Tony answers: Norbert, you asked some good questions. First of, my method never considers the P/E ratio of the stock that I am trading. P/E is a fundamental measure which has no real trading rules associated with it. Besides, it was only a daytrade, which is how I treat stocks that are making new highs. GRA will be a buy on a pullback, assuming it pulls back in a way that would hint at the continuation of the up-trend, but I don't know to what price or at what price or what it will look like when and if it pulls back.
Further, I don't recommend trading options on the stocks I recommend, nor do I recommend trading options period. I have a problem with instruments whose prices are not determined purely by supply and demand. Since options prices are derived by the price of the underlying stock, time left to expiration and volatility of the stock, I stay away from them.
The most recent low on GRA is at 22.01 on March 5th. I drew a horizontal blue line just under the low on the chart above. You didn't specify your timeframe for being in the trade, but an intermediate-term stop would be placed under that low, say at 21.96. If your timeframe is shorter-term than that, or you can't risk taking such a big loss, it means you bought it at the wrong time. If you bought it at the wrong time, the best thing to do is get out and wait for a better time to buy it. Remember, I recommended it as a daytrade ONLY.
-Tony.
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Tony Golan
Chief Technical Analyst
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