My short of CMED was the best and worst trade of the day. It was the worst because I broke a couple of my rules on it. I let it go too far against me and I averaged down. This was actually going to be a swing trade but it turned into a day trade once the bottom fell out. (A rule that I have taped to my monitor is to take windfall profits!) In my intraday notes today I mentioned that I thought CMED might top around $40. My exact words: “11:08 CMED seems ripe to tank. Maybe $40 will be the magic number…” You can see why on the daily chart — it had gone up too far too fast.

Since it was so extended and well above its upper Bollinger Band I figured that I could short it near 40 (a nice round number which should be resistance) and hang on to it for a few days while the mania wore off. I was hoping to cover at about $35 next week. As it kept going higher I (stupidly and stubbornly) decided to double down. “Surely it’s gotta break” I said to myself while constantly looking at the daily chart in disbelief. Finally the music stopped and you see how viciously it dropped.

I promptly covered half at $36.23 and the other half at $33.975. So my average entry was $40.03 and the average exit was $35.10.

I don’t try to short these mania stocks very often because they can be so painful but some of my biggest winners were on trades just like this. I need to study how these things top some more so I can catch more of these in a much less painful manner.

P.S. I guess I owe Cramer an assist based on what I saw on Mad Money a while ago. He wrote a ‘pigs get slaughtered’ piece on CMED for RealMoney this afternoon. Thanks Jim! :-) Sometimes it really is better to be lucky than good.