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Parabolic Uptrend: IIIN

Some stocks on the move are simply best avoided.

We’ve looked at MOVI twice (December 6th [1] and February 13th [2]) as a downtrending stock [3] to avoid. Cheap stocks can be tough to short sell [4] because they don’t move very much and they become more ripe for takeovers, which you sure don’t want to get caught on the wrong side of!

But sometimes stocks move up at such a rate that they too are best avoided. Anytime a stock is running higher at a rate which is not sustainable, it’s probably best to just observe and wait for a good chart pattern [5] to develop before entry.

One such stock is IIIN. This stock has now moved higher an incredible 17 sessions in a row, moving up by over 44% during that time! This is called a parabolic uptrend [6], and although it often will be the way a stock ends its advance, it is extremely difficult to trade. For one reason, the stock has advanced so far that it’s tough to buy it with any confidence. Secondly, when the music stops, you can bet that everyone’s going to start looking for a chair and the stock could surrender lots of ground quickly in search of bids at a lower price. This makes a stock like IIIN hard to buy or go short in.

Parabolic Uptrend [7] IIIN is on a tear, but I wouldn’t want to be a buyer here. Buying puts would be my only consideration, because trying to short a stock like this can be like stepping in front of a freight train!

Always consider the emotions of other traders in a stock like this. The ones who are short desperately need to cover, and the ones who are long are tempted to take profits. Such emotions in a stock like IIIN after an extreme move will surely keep things tricky! If you must dip a toe in the water, be careful with this one. Puts might be the only thing to buy related to IIIN, but avoidance is probably best for now.

Jeff White
President, The Stock Bandit, Inc.
www.TheStockBandit.com [8]

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