Last week I wrote about how I use Stock Viewer and I said I always look at the corresponding graph of each stock. Implicit in that process was the notion that I was looking for stocks that I might buy. Now that's a pretty easy thing to do. I simply prefer stocks with smooth, rising price patterns and steadily rising forecasted earnings.

Of course I would always like to see the same things in the stocks I own, but for some reason, that's not what always happens. So I'm faced with the task of deciding what to do with each stock, every day. Should I sell it? Hold it or maybe even buy more? The decisions I make depend upon a lot of things and graphs play an important role in making them. Take Starbucks, SBUX, for example. Here's a stock I fell in love with a long time ago, so I bought it. I know, you're not supposed to fall in love with a stock, but I did, and it's given me fits from time to time. I see it's down $2.53 a share as I write this essay, so am I going to sell it? I don't think so.

I explain why I'm not inclined to sell it as we look at some graphs. Take a look at SBUX's All Weekly graph. Set it up so that you see only Price data in the upper portion and the Comfort Index, CI, in the lower portion. You can see immediately that SBUX has gotten very volatile over the last few years. Although it has always been more volatile than I would have preferred, its CI was holding up quite well. Now, however, its CI has weakened substantially. So it's not a stock I would buy at the present time. But why wouldn't I sell it?

Replace CI in the lower portion of the graph with EPS. EPS has gone from $0.05 per share in June, 1995, on a split-adjusted basis, to a current level of $0.88 per share. That's a factor of 17.6. Its' Price has gone up by a factor of 19 over the same time period. This similarity in Price and EPS increases is not a coincidence. So SBUX has a great track record, and I expect it to continue doing well. But how does one live with the volatility?

Let's look at a Standard two-year daily graph of SBUX. Note that SBUX's Price fell below its Stop-Price on a few occasions over the past two years and bounced back each time. So why didn't I sell it on those occasions? Other than being in love with the stock, I have another way of handling this situation. Take the Stop-Price off the graph and add a 20-day Price MA to the upper portion. Now when I see the 20-day MA cross below the 40-day MA and the RT go below 1.00, I'll sell Covered Call options to mitigate the downside loss. I'll buy the Call options back if they haven't expired before the 20-day MA crosses above the 40-day MA and RT goes above 1.00. The sequence of SBUX Covered Call sell and buy dates for the past two years is as follows: Sell 01/26/05, Buy 04/06/05, Sell 04/11/05, Buy 05/17/05, Sell 07/07/05, Buy 10/15/05, Sell 05/18/06, Buy 07/05/06, Sell 07/20/06, Buy 09/20/2006.

SBUX's Price may have peaked for now, so I'll just wait and see if the 20-day MA crosses downward through the 40-day MA. If it does and RT goes below 1.00, I'll sell some Covered Calls and use the credit I receive to buy some Free Coffee.