Active investors reap rewards in markets that are trading sideways or mildly trending. Those who take advantage of market moves – locking in solid gains and buying good stocks under short term pressure – can outperform their “buy and hold” peers.

The Australian 200 share market index is higher than it was in December 2016 by 3% - 4%. In that time it has traded through an almost 10% range, between roughly 5,600 and 6,150. However in that period many stocks within the market have shown spectacular gains and heart stopping losses, far larger than the index moves. Some have done both.

A recent example is software logistics group Wisetech Global. It climbed from $9.00 per share in October 2017 to an all-time high at $16.27 in February 2018. That’s up 81% in 4 months. Investors who didn’t act may have watched in dismay as the share crumbled back to the $9.00 level in the following 2 months:

Wisetech Global Ltd – daily chart. (Top section is the price, middle is the MACD indicator, and the bottom section is the RSI indicator).

However once again WTC has climbed spectacularly. Any investors who bought around $9.50 in the first week of April (just two months ago!) are up more than 60%. Is it time to consider selling?

Bloomberg consensus estimates show that the price to earnings ratio for the next twelve months is around 107 times. This may be misleading in a high growth stock. However even after factoring in growth in earnings of better than 25% p.a. the PE ratio 3 years out is still higher than 50 times. That’s expensive in my book.

Further the chart is also flashing red. The MACD is crossing well above the zero line, usually considered as a sell signal. The RSI is in overbought territory and making lower highs – diverging from the share price’s higher highs. Another sell indication.