Network Engines (NENG)

Company. Network Engines specializes in what it calls enterprise appliances to deploy and install mission-critical software. An enterprise appliance is "a network-enabled device that is explicitly designed to provide a single dedicated services or a suite of services." (company website)

Buy. Network Engines bottomed out at $0.92 in October, 2002. It then got as high as $1.98 in January, 2003, before pulling back to $1.11 in February when the price began trending up.

I bought in late August, the second time NENG broke the $5.00 barrier. In July it got as high as $5.60 but immediately fell back below $5.00. On the second try, it got to $6.10 before pulling back as low as $5.04. Since this pullback was higher than the previous one, I bought on the first up-day that the Chaikin oscillator crossed the zero line.

Sell. Last Wednesday, NENG got as high as $7.86 during the session, although it closed somewhat lower than that. The price had taken a big jump just the day before to break $7.00. I expected the price might consolidate a bit before moving up.

On Thursday of last week, the chart formed a hanging man (I love these names!). Friday "confirmed" this bearish signal by opening lower and continuing lower during the day. Since it stayed above $7.00 (a price at which my gain would still be $1.50 per share), I did not sell.

This morning NENG started down again. The Nasdaq in general was down, but most of my stocks were up; this made me nervous about NENG. Not only did this make the third consecutive day of falling prices, but the -DI line (the red one) turned up, indicating a rise in selling pressure. Although it is not unreasonable for NENG to pull back somewhat, this drop was more extreme that I was comfortable with — I decided to protect my gains with a stop-loss order at $6.50, which would still net me a profit of $1 per share.

The order was triggered and my stock sold.

I suspect that NENG will rise again after this pullback. If it does, and conditions look promising, I can always buy back in without creating a "wash sale" for tax purposes. (A wash sale is only created if you buy 30 days before or after selling the same stock at a loss.)