As you know, I removed both Coach (COH) and Tower Group (TWGP) from the MSW Index this weekend as they both violated moving average support lines. I will include the charts in this blog to highlight what I am seeing and why they were removed.
In the case of Coach, I have been a long time supporter of the stock with coverage going back to early last year but it is turning into a laggard compared to the other leaders. I said it was a sell with a break below $32 last week so I must follow rules and take the profits for the MSW Index and move on. The relative strength rating has dropped from:
89 on July 29, 2005 to
83 on November 30, 2005 to
75 on December 12, 2005 to
66 on January 4, 2006 to
48 on January 22, 2006 (today)
We had an excellent trend buying opportunity in October and touted this area on numerous occasions at the same time (URBN) was making a final push to new highs before breaking down. In my opinion, it is sometimes a better policy to cut a stock while it still shows a small profit rather than waiting for it to give you a small loss in the future. When things don’t look or feel right, sell. Remember, you can always get back in if the trend reverses.
In the case of Tower group, the stock opened up for a 20% gain on the Index, only to be cut at the knees for a 12.96% drop below the 50-d m.a. I started the coverage in late October at $18.53 but have an uncomfortable feeling with the recent drop. As mentioned, the stock maintained a 3% gain while on the Index but I feel safe taking the very small gain rather than a small loss if it continues to drop. Even though the stock doesn’t show a loss at this point, you must learn that taking a small profit before it materializes into a loss may be the best course of action. The next level of support is the 200-d m.a. (currently near $15.94). I am not waiting around to see if it holds my entry area or this lower level of support above $15. The current RS rating sits at 88 for (TWGP) but has dropped off from 96 earlier last week.
Piranha
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