Home Solutions of America (HSOA)

Company

"Home Solutions of America specializes in restoring and rebuilding homes and businesses that have been damaged due to fire, weather or other natural disasters. In addition, we serve growing and densely populated areas by providing services for housing and business development." (company website)

HSOA 3-month stock chart

Buy

Home Solutions has been trending gradually upward since fall of 2006 (see sidebar). Since mid-January it has been trading above the 50-day moving average.

  • Price momentum (PPO) — picking up quickly
  • Trend (ADX) — strengthening, with very strong buying pressure (+DI)
  • Money flow (CMF) — brisk in-flow
  • Relative strength (RSI) — strengthened to very near strong band
  • Volume — worrisome that it has been declining, but recently has shown volume on up-days

Based on technical analysis, MarketEdge calls HSOA a "buy" in a "weak upward trend."

Sell

loss Bottom line
-10%

Just when things were looking up— this morning an analyst downgraded HSOA from "strong buy" to "buy," and a sell-off followed. It was bad enough to trigger my stop-loss order with disastrous results.

All is not lost, however. I have been mulling over an alternate way to specify my stop-loss orders and this has, I think, answered the question of which way is better.

Old way
For <ticker>: If Ask is less than or equal to <activation-price> sell <ticker> at Market
Alternate
For <ticker>: If Ask is less than or equal to <activation-price> sell <ticker> at Limit <ask-1¢>

The idea behind selling at Market, the conventional wisdom goes, is, if you want to get out, get out! Selling at market ensures that your shares will sell. The risk with thinly traded stocks, however, is that the current Bid might be considerably less than the Ask, and you will suffer a greater loss than you might have to.

The idea behind my Alternate form is, set a floor with a limit, but sweeten the deal by asking just a little less than everybody else.

In the case of HSOA, set in the standard way, the sell order was triggered at $6.27, but the current Bid was $6.13, a difference of 14¢, money I left on the table. If the stop-loss had been specified in the alternate way, my shares would have sold at $6.27 or better because just ten minutes later HSOA traded back up at $6.44. It wouldn't necessarily work out that way, of course, but odds are that it would.

The conclusion I reach is: set the stops with a limit even though it might mean order would fail to execute. And my frustration is reinforced by having a stop-loss ordered triggered by an outlying trade, especially during that very volatile first half hour.