Sycamore
Networks (NASDAQ: SCMR)
Market Call™ for January 19, 2001
Contributed by Mark Seleznov, TrendTrader.com.
The purpose of this Market Call section is to
educate readers in technical analysis patterns and indicators. As with all investment
information, you need to research information and consult your financial advisor before
initiating any strategies that are contained in Market Call.
Also, you must realize that as with all trading strategies,
opinions can change quickly depending on market conditions and developments.
This column tries to present historical examples, potential set
ups, and examples of entry and exit strategies.
Support and Resistance
Breakouts
Regardless of the direction of the general market, individual stocks may
participate in a bull or bear market of their own. In 2000 while the general
market was making new lows we had stocks such as Budweiser and Philip Morris
breaking out to new highs. By overlooking these types of opportunities and
attempting to pick a bottom on the Nasdaq many traders suffered
unnecessarily last year.
I do not attempt to evaluate whether to go long or short an individual stock
based on the direction of the general market. By monitoring the charts and
following the trend of an individual stock we can determine crucial entry
and exit points.
When playing a breakout I am looking for a stock to break through a
resistance point. My expectation for this type of trade is that once the
stock breaks through resistance it will continue to go up.
The nice part about playing this type of trade is that we can usually
determine very quickly whether indeed it was a real breakout or if it is
what we refer to as a “false breakout.” The risk that we take in this trade
should be very minimal. Our stop should be marginally lower than the
resistance point and our upside should be only limited by the next
resistance.
The key to this type of trade is to understand that you are trading on an
expectation. This should be a very low risk trade. If the stock falls back
of the resistance we should be out with no more than a one-point loss.
However if the stock lives up to our expectation it should offer a multiple
point gain. This offers a good risk to reward ratio and a good reason for
taking the trade.
A good example of this type of trade
is SCMR.
After making a nice run from a high of 39 � on Jan 10th to 48 on Jan 12th
SCMR had not been able to gather up enough steam to convincingly breakout of
the 48 range. During the past three trading sessions the stock has made some
good attempts even reaching 48 � on the 17th. On the 18th SCMR looked as
though it may be making it’s most valiant attempt of breaking resistance.
Toward the close the stock traded as high as 48 �.
I feel if the stock can break through 48 3/4 it will have a good chance of
making another run towards its previous highs. I would place my buy stop at
48 13/16. If filled on this order I would not allow the stock to fall more
than a point placing my stop at 47 13/16. I would not enter SCMR unless it
trades above 48 13/16.
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Call Information
Mark A. Seleznov is a General
Securities Principal and Managing Partner of Trend Trader, LLC, a NASD, SIPC broker/dealer firm located in
Scottsdale, Arizona. A professional trader for over 25 years, Mark was a Market Maker on
the Philadelphia Stock Exchange, a Retail Registered Representative, and futures trader.
Mark is an author and recognized expert in equity Day Trading. He conducts seminars in
Equity Day Trading and offers his firm traders training and support. If his firm holds any
positions in the public companies he writes about, it will be noted at the bottom of his
article.
Market Calls is a daily syndicated column on trading by Mark A. Seleznov, Managing Partner
of Trend Trader,
LLC. For information on obtaining Market Calls for your web site,
newspapers, or publication, contact Trend Trader, LLC at 602-948-1146
Disclaimer: Trading in securities may not be suitable for
all individuals. Consult your broker or other professional to determine your suitability.
This is not an offer to buy or sell securities. The advice given above is of a general
nature and should not be taken as a recommendation to buy or sell the referenced security.
Copyright �
1998-2000 Tulips and Bears LLC.
All Rights Reserved. Republication of this material,
including posting to message boards or news groups,
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is strictly prohibited.
Last modified: January 19, 2001
Published By Tulips and Bears
LLC
