prancingbull.com

It has come time for me to reconsider my holdings in Make Music (MMUS). I initially purchased this stock on 10/29/2007 at the averaged price of $9.07. This averaged price factors in the commission as well. It initially dropped down to $8 right away, but I held on and soon thereafter it reached $10.75/share on 12/24/2007 which also happens to be its’ 52-week high. Isn’t that convenient. Since that high, it has dropped 17.2% to its’ current price of $8.90/share.

After reading my most recent book on technical analysis, I have started to analyze charts in a much different way. Yesterday morning I was looking at the chart for MMUS, and I noticed that a descending triangle had been forming over the past three months. This triangle has a support of $9 which has been tested about six times depending on your definition of what a test is. During the time that this support price was being tested, the new highs on the bounce backs were becoming lower and lower.

Based on what I read in the book, this is generally seen as a very bearish signal. Typically once it fails to get a bounce back from the support it takes a large drop down once the support gives way. After that, the previous support level tends to act at the new resistance point.

Using this chart read combined with the fact that MMUS is trading at a P/E of 82.74 I have decided to sell my holdings in MMUS. My only concern with this sale is that MMUS is a very thinly traded security and I may not be able to get top dollar for my sale. I will be happy though to say that I got out of it before I lose a bunch of money on a big drop.

I have decided to adopt the common strategy of accepting a lot of small losses in order to get some large gainers. This is the first stock that I have consciously taken that approach on. In the past I was never able to sell a stock before it lost a ton of money because I would always get far too caught up in it. I would always talk myself into believing that it was poised for a big rally if I just hung on a bit longer. One of my worst trades like this was with Sirius Satellite Radio (SIRI), although I think many others shared the same outlook as I did.

So now that I have cut my losses on this security it is time to start looking for something new. Stay tuned to see what my latest bold pick will be.