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ARCHIVE:    JUNE 1999-MARCH 2000  

An InvestorLinks article
distributed every market day.

Legato Systems  (NASDAQ: LGTO)
Market Call™ for March 28, 2000
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 and Breakouts

    Think of security prices as a war. It is a battle between a bull (the buyer) and a bear (the seller). The bulls push prices higher and the bears push prices lower. A buyer that feels an area has good value, will buy at that level. The seller that feels that a stock has reached fair value, will sell at that higher fair value price. The direction prices actually move reveals who has won the battle.

    Remember when a trade takes place, a buyer and seller agreed to a price. There was a buyer and a seller involved in the transaction. The buyer feels the stock will go up. The seller wants to move on to another stock that he may feel will appreciate faster.

    Support levels are the price where the majority of traders feel the value is a good buy.

    Resistance is the level in which the majority of traders feel prices will move lower.

    When the majority of traders and investors change their expectations, these support and resistance areas get violated and a new trend may be beginning. This can occur due to changes in expectation of earnings, new product development, change of personnel, cut backs or expansions.

    One interesting pattern that traders see after a breakout is that the stock or index retraces a part of the initial move by about 50%. If the 50% retracement does not hold, the stock or index can still be in a trend if the previous breakout resistance holds.

  • Let's look at Legato Systems (NASDAQ: LGTO).

    Breakouts can show in a variety of patterns. Many times we are looking at stocks breaking to new 52 week highs. However, there are many excellent opportunities to trade a stock breaking 20 day highs, monthly highs, or 3 month highs.

    We have seen some stock disasters do to missing earnings, changes in management, lawsuits, accounting irregularities and other factors.

    Many traders want to just buy these disasters, but I like waiting for a channel of support and resistance and playing the second or third breakouts.

    LGTO had a disaster back in mid January dropping from 55 to 28.

    After a couple of weeks of continued pressure, the stock is had a series of small channel breakouts to the upside.

    Once again today, March 27, 2000, LGTO broke a 10-day trading high. In fact, LGTO broke a 3-month high today.

    I would look for LGTO to continue up to possible fill the gap to the January price range in the mid 50’s over the next few days.

    I would Buy LGTO on any up opening or intra day rise above today’s high of 46.

    I would place a stop at 43 �.

  • Chart courtesy of
     


    Interested in adding Market Call to your website?
    Click here for details: Market 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.

     
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    Last modified: March 17, 2001

    Published By Tulips and Bears LLC