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Byline: CRAIG SHAW
As the Nasdaq's rally passes its one-year mark, many leading stocks have doubled or tripled their share prices. With the market now struggling through sporadic bouts of selling, leaders increasingly fall under the gaze of profit-takers.
No stock, however sound, goes up forever. The more extreme a stock's acceleration, the more it's exposed to sharp corrections. That's especially true for small caps. If a stock's trading volume is thin, bulk buys and sells can swing its share price.
The key in riding out corrections is separating normal pullbacks from sell signals. Did the stock's decline halt at a key support line like the 50-day moving average? Did volume wane compared to its up days? Or did shares skid on the heaviest trade since the breakout?
NetEase.com plunged 23% Wednesday after the Chinese Web portal missed Wall Street profit views on a fall in revenue from short messaging and other e-commerce services. The stock gapped below its 50-day line on the heaviest turnover of the year -- and far higher volume than its March 26 breakout. That's two sell signals in one.
If you bought at the initial breakout, you were still holding a threefold gain ...