Ask Mike:
Why pick stocks at 52-week highs?

Question:

George from LA, asks:

Dear Mike,

I am puzzled by the selections in the ETF5 portfolio. You entered several positions at the top of a run. Isn't that an invitation to disaster?

For example the entry point into EWK was not exactly objective. I have prepared a chart for you. Please look at the attachment.

Could you publish a target price with all your positions at the time that the trade is made?

George

Mike's Response:

Hi George,

Thanks for writing.

With regard to target prices, I don't calculate or use them. My system is completely based on trends that break above my time-adjusted 10-week moving average. I get out of a stock when it triggers my stop loss setting. Stop losses are generally set once per week, but in a rapidly changing market, we will send out update bulletins during the week.

As for buying at the 'top of a run'... I have made more money on stocks that are at 52-week highs than any other entry point. Sure, there is the occasional hit, where we pick a stock that has bottomed... but more times than not, stocks that set new highs tend to set more new highs.

Below is my chart on
EWK (iShares MSCI Belgium Index)

(Editior's Note: You can see this chart in a larger format in the ETF Total Return Portfolio Detail Page on the TurnerTrends website). This ETF has given numerous buy signals (green line) over the past 3 years shown in this chart, and there is no indication that the current buy signal will be short lived or anywhere close to disastrous. Only once in the past 3 years has the ETF not had a significant gain after giving a new buy signal, and even then, it stayed flat.

3 years ago, this ETF was at a highest high as it was 2 years ago as it was a year ago... in all cases, the ETF set subsequent new highs.

I studied your chart and it is impressive, but it does not provide the kind of real buy signals that I like to use. Granted, my chart is far simpler, but I believe it gives me a far better handle on entry and exit points.

Technical charting is important, especially with regard to ETFs, so I applaud you for using a technical approach.

I hope this helps with your understanding of my approach.

Regards,

Mike