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Charts Tell the
Good things happen when you're in chart-strong stocks!
We recommended buying H. F. Ahmanson (AHM) between 55-56 in our November 30, 1997 issue. The price at that time was 59.50 (pt A). As a rule of thumb, is it wisest to buy at the current price, a higher price or a lower price? You might be surprised to know that all 3 are correctóit depends upon the specific situation! And only charts can tell you which choice is best right now.
Notice that AHM had dropped to 54.188 (pt B) on October 28, 1997 & quickly recovered. Whenever an important low is made, the market usually "tests" that low before advancing very far. AHM rallied to 68 on December 31st and then dropped sharply to test the key 54.188 level. Tests can end either above, at, or slightly below a key price level. In this case, AHM plummeted to 51.563 on January 12th before rallying. Chart study revealed that an initial protective stop-loss should be placed at 48.25 (again, a defined risk)-a price level never reached during the "test" of the pt B low. Our subscribers were able to buy on January 8th & 9th between 55 & 56, as recommended (pt C).
On March 17th, the news broke that AHM was going to merge with Washington Mutual. When recommending AHM, we didn't know it would become a takeover candidate. But we did know that it was fundamentally sound, had minimal Asian exposure & a strong chart.