President’s Visit

There was news on TV that President Obama visited Cree’s Durham, NC facilities last week. I also have a good friend whose wife works at CREE and so I have followed the stock. The company is doing some wonderful things in the LED lighting area but if you look at the stock chart, the market appears to know something that we don’t. From my last post on CREE the fall in price has continued and has been relentless. The exit signal on my trading system was on January 14^th when the price of the stock was $64. I must admit I was thinking of the upside potential of CREE given all the wonderful things they are doing; but ultimately I trade based on charts and not on feelings and I have not been buying CREE. I could have jumped into my dynamic hedge system with puts on the sell signal. If I had, I would be sitting pretty on some tidy profits but my mind was thinking up. Wrong. The chart was right.

The chart on CREE has now dropped to $34.27 from $64 in 5 months. No long entry signals yet despite the divergence between price and one of the indicators. But it was not strong enough to push price up. I read that some one thought support was around $33.12. There is some support I see around there but the data goes back a while. Perhaps the support will hold and give the stock some strength to re-group.

Ultimately what makes a stock go up is revenue and profit growth and sometimes the growth potential itself is enough. I hope CREE succeeds in what they are doing. Some expect the price of LED lighting to fall significantly as the market has developed and invited more competition into play. CREE will have to stay sharp and demonstrate that their technology can keep improving their profitability and growth but the market must think that their profit margins are likely to erode. Some notable tech companies have been taking a beating lately – look at RIMM. The market thinks the makers of the Blackberry are falling behind and lower revenue and profits only point to shedding jobs and reductions; not growth.

I continue to see why I should use technicals to trade stocks and not my feelings and emotions. It is very hard, no impossible to say how long these downdrafts last. They can grind on for a long time, taking the hopes and dreams of retirement and wealth of its shareholders with them, unless we use technicals to pull out when the trading system says get out. A down arrow means get out. An up arrow says get in. They are not always right but if we can keep the losses low, change direction based on the signals, and then we can ride the long waves up or down to make money regardless of the noise and chatter that is designed to distract us.