As an example of the TSM approach, consider the following trade as described in the TSM Daily Before-the-Bell Report on 5/19/05.

 

Obviously, GIL is a mid-cap company with quality fundamentals, an improving Industry Group, good earnings-revision fuel (Zacks 1 ranking), and much value left at present prices (two-year PEG ratios less than 1.0).  Though to this point GIL had seen price growth of 50.1% over the past six months, earnings were still growing, and value remained.   Not shown here is GIL’s daily chart with explicit trade-management instructions, which is routinely included with each TSM selection.

Technically, GIL had just experienced a 5-day pullback, the first after a major period of consolidation followed by a bullish run in the past month.  GIL looked as if it were ready to resume its longer-term bullish run.  The following chart documents the trade evolution.

The local minimum (area “A”) offers support (technical stop-loss point) for a trade reversal after entry on May 19^th at the first arrow.  As shown in the “entry” box, the trade was entered when that day’s price exceeded the prior day’s high (a demonstration that bulls were in control).  A few days later on the 23^rd half the position was sold for a $0.80/share profit (+3.5%).  Profit taking here combined with a resetting of the stop-loss point ensures that this profitable trade doesn’t turn negative.

 As GIL’s price continued to run up, a 2-day trailing-stop (sell stop placed near the low of the preceding two days) strategy was utilized as price climbed into an area of consolidation marked “B.”  Price thrust upward into late May then profit taking began (pullback into area “D”).  As shown in the “exit” box, the second ½ position was sold for a $3.38/share profit (+14.7%).  The position was re-entered in late June (not shown here).

 The TSM approach uses quality stocks as a vehicle to take short-term profits (~55%), to eliminate quickly those positions that reverse or don’t continue as expected (~40%), and to let strong performers run so as to capture greater profits over a longer term (~5%).

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