Grabbing Some Georgia Gulf Corp. (GGC) and Paying for my Mistake

Well, it's been a generally good week in the portfolio. I will begin to show the composition of the entire portfolio every week once I clear it of all the positions I had before I started the blog. It would have been fantastic except for the data entry mistake I had made on RAX that I mentioned last week. That one's gone against me 10% in two weeks, which reminds me of one of my rules. Rule 1 is "The best way to deal with a mistake is not to make it in the first place." Rule 1.1 says "When you make a mistake, get out of it as soon as you realize it--end of story." Obviously, I'm not following my rule, particularly because it looked still like the people in the company are dumping shares, and so are the big fund managers. So now I wait. My exit point is when the Accumulation/Distribution (A/D) line reverses it's downtrend. You'll be sure to know if/when I get out of the position and what the result is. If that moment arrives, it will be quite ugly, no doubt.

But on to this week and better things.

Overall Market Analysis

If you go to my analysis of the broad market last week, basically, nothing's changed. Everything is still frothy. The divergence in the Relative Strength Line (RSI) for the Wilshire 5,000 Index (WLSH) is still there on the daily chart. The only difference is that The Wilshire has now entered overbought territory on the weekly RSI, which is OK on that chart because there's no divergence yet, but still would traditionally signal that we're nearing the end of the rally. Technically, we were there 2 weeks ago on the daily chart, though, so you just have to go with the flow now because the technicals are broken. The volume is still favoring the upside. Also favoring the upside is that the A/D line on the WLSH weekly chart has resumed its upward march quite robustly, which says that last week, there was a lot of buying at higher price points underlying the market, a sign of strength. And so I buy yet another stock, ignoring its fundamentals. They don't look all that great. What I said last week was that I was shifting emphasis to technicals away from fundamentals until the irrationality leaves the market. So, I buy Georgia Gulf Corp. (GGC), a chemicals and home materials manufacturing company.

Technicals - Weekly

When I'm buying stocks that have just crossed their 200-day moving average I usually like to do it when they are dipping out of a trend and then bouncing back into the trend. In this case, this one is reversing trend. It's down from (and now get ready for this) $1,337 in 2004 to a low of $7.25 in mid-2009. I must say I have rarely seen anything like it, and I didn't really notice until I started writing this up because I won't look back that far unless I'm doing a written piece on a position I enter.

The stock tried to break the 40-week MA (200-day MA) once in July/August of last year and failed. Since then, you can see all the higher volume on up-weeks. On the Relative Strength Index (RSI), you got divergence for the first time in January of 2008, and that divergence continued through July 2009, when you got a double bottom reversal. Also, look at the nice up-trend that has developed in the A/D line for the first time since, well, forever. This tells you that the major investment houses have reversed their sentiment from negative to positive.

Technical Analysis - Daily

Right off the bat, the RSI is frothy here on this stock (over 70), but there hasn't been any divergence. I do expect this one probably to go up a bit more and then pull back once. Notice how the stock broke the 200-day MA once already, reversed, and then bounced nicely. Admittedly, I would have liked to have seen more volume on the bounce. Stochastics are also showing overbought (over 80), but I don't see any divergence yet, so still good there. Generally, this one's exciting. Considering where it came from, one can only imagine where it can go. I will place a somewhat tight stop on it at 4% below the 200-day MA (or $18.53) so that I am out should this market engage in its long overdue reversal.

As usual, thanks so much for reading!

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