China Automotive Systems (CAAS) - How Buying at Support Can Make You a Lot of Money Quickly

China Automotive Systems (CAAS) is a name I've had on one of my watch lists for well over a year now; I have yet to pull the trigger to add it to the portfolio however.  About 2 weeks ago a reader and I were corresponding about it, as it pulled back to support in light holiday trading.  It had dropped 4 sessions in a row and after not penetrating the 20 day moving average in all of November and December, it dramatically fell to the 50 day moving average during Christmas week. 

The severity of the drop had me wondering if something else was going on; I did not buy as it brushed $16.  Said reader did.  

[click to enlarge]

The next day the stock rallied to $19. (+19%).

The next day it hit mid $20s (+28%)

The next day $21... it then pulled back for 3 days, falling to $19 before catapulting higher the first 2 days of the new year; reached $24 (+50%)

That's 50% in 8 sessions.  Of course, like I would have, the reader pulled the trigger and took profits early because when you are handed 20%+ in just a few days, you tend to take it and run to the bank.  While an extreme case - this shows why buying at support can make you a lot of money.

If I had been thinking clearly I would of bought at low $16s with a tight stop loss of $15.50.  I would not of sat through the entire 50% move, but 25% is better than 0%.  Missed opportunity; these things are *so* much easier to see after the fact of course!

Even if you are not an investor who cares about fundamentals, this is one heck of a trading stock.

[Dec 1, 2009: China Automotive Systems - Now That's a Breakout]

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