On December 21st when ARMH was at $19.78, I wrote that ARMH was a possible cup-with-handle pattern. Note the prior up-trend, multi-week base shaped like a cup-with-handle, and the high volume break-out (volume not shown) above the pivot point (top of the handle, shown by the horizontal red line). This is a chart pattern made famous by William O’Neil, the publisher of IBD. I updated the chart I posted in December to show you how ARMH has done since. It is up a little more than 48%. Most people tell me they want to ride a stock to the moon, and yet they refuse to buy stocks trading higher than they have ever traded before! If you want to get to the moon, better jump on a rocket that is climbing higher and higher into space (as did Livermore and Darvas). Note the “NA” on the chart, indicating that IBD wrote about ARMH in their New America column which describes promising, innovative companies. According to O’Neil, when a winning stock breaks out of a solid pattern, it should not decline 8% from the pivot point. Therefore, he suggests placing a sell stop (real or mental) 8% below the pivot point. This is a good way of limiting risk in case the pattern fails.
A word of caution, the Worden T2108 Indicator is now at 70%. Readings near 80% tend to occur around short term market tops.