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.
Channel Breakouts and Breakouts to New Highs
Channel Breakouts are a popular method of trading stocks. The
principal behind a Channel Breakout is that when a stock trades above the highest price or
below the lowest price in the last N (number of periods) number of periods, a new trend
may be starting to take place.
This channel trading method can be used in any number of periods
from minute bars to weekly time frames. The results of using such a method will often
result in a stock moving above a defined resistance or support area. When the top of the
channel is a new high, the moves can be explosive.
Let's look at Computer Associates, CA
On June 8, CA hit a 6 month high at 52. CA retraced down to the
46 area were it found good support at that price. A Moving Average trader may have entered
the stock on June 16 when the Moving Averages crossed.
A Breakout trader will be waiting till now to see if CA breaks
this 6 month high at 52. As always, this is a market of stocks, more than a stock market.
Although the market was down, CA had a good day on increased volume. Volume at the end of
the day was particularly high.
I am looking for CA to break the 52 and move higher. I would Buy
CA here. I would place a stop at 50.
