When markets are in a correction, deciding when to sell a stock is more important than ever. As stocks breakdown, investors must have clear sell signals to avoid major losses.
IBD 50 stock and innovative semiconductor play SGH demonstrated a couple of these sell rules. However, its fundamental strength may make it worth adding to your watchlist for the future.
These IBD Sell Rules Show When To Sell A Stock
Over the past month, SGH erased gains from a breakout. The base began forming in July, according to MarketSmith. The 16-week pattern had a handle buy point at 54.35.
Shares broke out Nov. 1 and made new high about a week later. In mid-December, the stock's 50-day moving average caught up with the price and boosted shares. The stock became extended and even reached the 20% profit zone in December.
Taking profits once they reach 20% or 25% is a smart way to go, and worked well in this case.
Just as the stock peaked, quarterly earnings came out and sent the stock lower by over 15%. Shares briefly gained support at the 50-day line but this area did not hold up. The stock decisively broke below the 50-day line on Jan. 20, sell signal No. 1.
With Thursday's loss, the stock triggered the round-trip sell rule, sell signal No. 2.
From the beginning, the breakout's volume was disappointing. Investors ideally want to see at least a 40% increase in volume alongside a stock's breakout. SGH is still a small cap, with a market capitalization of less than $1.5 billion.
Stocks To Watch: SGH
Despite the breakdown, shares could gain support at the 200-day line and remain worthy of your watchlist. In recent years, the company has made some major changes that seem to be paying off.
Smart Global rebranded, changing its identity to SGH to signify an important evolution. New CEO Mark Adams has made moves to transform SGH from a legacy tech company to an innovative semiconductor firm. After being a memory leader in the chip space for more than three decades, SGH decided to broaden its product portfolio via a series of acquisitions.
The semiconductor firm has multiple businesses units. The largest is Memory Solutions, which involves the sale of flash memory cards and other similar products. Intelligent Platform Solutions, also known as Penguin Computing, was SGH's first key acquisition back in 2018 for $85 million. Penguin is the firm's unit for making high-performance computing products used for cloud computing and artificial intelligence technology.
In 2019, SGH acquired Artesyn Embedded Computing and Inforce Computing for $80 million and $12 million, respectively. Artesyn — now named Smart Embedded Computing — supplies critical data center architecture to industries such as telecom, military and aerospace, medical, and diverse automation and industrial markets.
Customers include Department of Defense, Dow Jones leader Cisco Systems, Samsung Electronics, Hewlett Packard Enterprise and Dell Technologies.
About a year ago, SGH acquired LED maker Cree, for about $300 million. It's now known as LED Solutions and brought in fourth-quarter revenue of $123 million.
Smart Global Reports Record Earnings
SGH reported quarterly results for fiscal Q1 on Jan. 4. Despite beating analysts' estimates and raising guidance, shares sold off in heavy volume. The company noted record revenues and margins that led to a year-over-year EPS increase of 177% for the quarter. Meanwhile, sales rose 61% year-over-year to $470 million.
The firm also announced a 2-for-1 share split in the form of a share dividend. The share dividend will be paid on Feb. 1, and the shares will begin trading on a post-split basis on Feb. 2.
Follow Rachel Fox on Twitter at @IBD_RFox for more tips on when to sell a stock.
