Sand Spring Advisors LLC
Waiting for Strikes:
AOL Target Rewards
July 24, 2002
by, Barclay T. Leib
When, on July 2nd, we pointed toward a target low in AOL toward 10.41, we weren't quite sure how the market would reach that level. This was particularly the case given that we were already turning bullish (prematurely as it turned out) the biotech, and even the tech sectors, at the time.
Yet the Fibonacci rhythm of AOL on the weekly chart was clear. The then current price of $12.52 would somehow yield to a low nearer $10.41, and today -- a bit of unanticipated Armageddon in the Dow and S&P 500 in between -- that target was reached. As a matter of disclosure, we bought shares of AOL for our own account today.
The broader market indices certainly looked a bit scary in the a.m., but knowing AOL was reaching a major target, even if the world temporarily appeared to be melting, helped embolden us to do other selected equity buying as well. The subsequent market turnaround was swift enough, and took place within the right window of time, that we will largely forgive the morning downside overshoot.
Zooming into a 60-minute chart, the question now becomes where to sell AOL. Stop loss orders may obviously be left below Wednesday's low at $10.34 -- likely with some safety from election. And to the upside, we'd anticipate at least reaching $14.72, and with time, maybe even $21.33. At $14.72, if realized, this quick flip would represent a 41.4% gain. Even within a tough year, a cruel month, and a particularly scary day, such a potential trade reminds us of Warren Buffet's advice: Don't swing at every pitch, but be patient, and wait for a nice strike down the middle of the plate. We thought AOL represented such today.
7/25 Note: We were stopped on this position almost before pen left paper come Wednesday's open. We think the SEC investigation will come and go and leave AOL relatively unscathed with time, but alas, the markets are currently viscious, violent, and emotional. A Fib support region such as this in AOL should have normally held much better -- at least on first touch. A difficult month continues for Sandspring, particularly as this perceived strike suddenly turned into a curve-ball.
Non-subscribers are invited to sign up for our premium level of service below, and gain immediate access to our July 8th commentary entitled "Biotech Bottom," as well as our July 16th subscriber-only update. Access to earlier Sandspring.com analysis, as detailed below, is also provided.
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