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.
Over the past few days we have seen most indexes and many stocks
break to new 52 week high. When a stock or index breaks to new 52-week highs, they often
continue higher.
Let's look at METRICOM, MCOM
A recent jump of MCOM on huge volume occurred last week. There
was a major fundamental factor involved with the increase. Since the big move of June 21
and 22, MCOM consolidated at slightly lower levels.
The most recent move up started June 28 and is now poised to
break to new highs. Volume is starting to increase again which is a positive sign at new
high levels.
When a stock breaks to new 52-week highs, every shareholder is in
a profitable position. If new buyers come into the stock, an explosive up move is
possible. I would Buy MCOM. As always, use a stop loss on all trades. I would place my
stop at 18 3/8
