Tuesday, February 6, 2007

Back to the Basics

Part of making a good trade is having a good plan. For me, a good plan starts with a great chart. AINV sure is a beauty. Marketwatch says this:

"One area that continues to steal the headlines is private equity lending by hedge funds and high-profile private equity pools of capital. The move to go private is sweeping many industries, as many companies simply find it easier to operate more efficiently being private as opposed to being beholden to the rigors of the Sarbanes-Oxley reporting requirements for publicly traded companies. As such, Business Development Companies, or BDCs, like Apollo Investment (AINV) that invest in mid-size private growth companies are poised to continue their winning ways in 2007. The stock pays a dividend yield of 9% and is forecasted to grow top-line revenues by 33% in the current year."

Curiously enough, if you pull up this chart at www.bigcharts.com their data actually shows the Nov. highs being around 23.25, which I think makes for an even prettier chart, if that is possible.

So where is the trade here? I like to start small, so my initial purchase may be 500 shares at ~22.80 Wednesday morning. The approximate mean of the average true range is .40 I would double that, making an .80 cent stop. I don't like stops at major whole numbers, so I will adjust down. Keep in mind one of my trading goals is to let winners run and not set stops as tightly. This stop works well because it is just below the pivot point. I think if one would want to set a stop tighter, I'd say 22.45 would be a good place.

For a target, I will shoot for $25.50 The chart shows AINV tends to run about 3 bucks after breaking out. So, for a tighter stop, this trade gives a good risk to reward. If you are like me, I've seen a million times where a stock will revisit the pivot point/breakout level and then take off like a rocket. That is one reason why should I decide to buy this I will give a looser stop to allow for AINV to revisit the pivot.

The drawback to this trade is that the price is extended farther from the 20dma than I would like. We'll see if this trade gets executed tomorrow.

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