All-Time High Stocks: A look at the trend of Summer Infant, Inc. (SUMR)

Summer Infant (SUMR) made a new all-time high last week (link). I like to watch stocks in the $5 to $10 range because they tend to be less volatile than stocks with lower prices and there is the potential for huge growth in recognition. What I mean is that because many investors screen out low-priced stocks ($10 is a common cutoff), once a stock's price exceeds $10 it "suddenly" appears on more peoples' stock lists and it already has a nice chart. Voila, more potential buying pressure!

Below are some Guppy multiple moving average charts that show the trend for this stock and its sector. The trend is up on all time-frames and there are positive signs. However, the sector and market trends are uncertain at this point, so that is something to be wary of. As we saw with the example of Potash Corp (POT), a stock can move higher as its sector or market moves down, but only for a while.

In the second chart below I've included a 7-ATR trailing stop, which is quite a relaxed stop that is intended to follow the main trend for a long time while ignoring smaller movements in the price. At this point the trailing stop is protecting a small gain from buying on the first all-time high after the big sell-off in '08-'09. An interesting thing about the ATR-based trailing stop is that if the stock can quietly move sideways for a while it will decrease the Average True Range and raise the stop. In other words, the trailingstop can go up without the price going up. There are many approaches to choosing an exit strategy, but my goal here is to limit losses and follow the trend in a stock with little overhead resistance (selling pressure) that has the potential for big gains. By doing so, losses become minimized while profits are not limited. This principle is what stacks the odds in your favor.

Below are two charts of XLY (Consumer Discretionary) that I'm using as an approximation of the sector trend. XLY is showing some caution signs, but it still has an upward sloping 200-day moving average. Notice that when SUMR showed weakness in November/December of 2009 the sector was showing a strong trend that helped lift SUMR back into an uptrend on all timeframes. The issue at this point is the reverse: when SUMR shows weakness again, will the sector be showing strength?

In summary, the trend remains up for SUMR so a trend follower should stick with it while paying attention to the messages of the market.

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