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.
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.
As we continue to see weakness in many stocks, I like to look for a stock
that has been holding up better than the general market or is a leader in
their sector.
Let's look at AT HOME, (NASDAQ: ATHM).
Despite a recent blood bath in many Internet related issues, ATHM has been
trading in a range between 44 � and 47.
Relative to the Internet Index and the general market, ATHM has performed
better than the rest.
It has formed a base and may be poised to move.
If we get a rally in the Internet stocks, ATHM may move higher, faster than
the other Internet stocks.
As in the last few Market Calls, we want to wait for confirmation before
entering in to the trade.
I would enter a Buy ATHM only on a break above 47 �.
If I were filled at 47 � on a Buy Stop, I would place my stop at 44
�.
This strategy can be used with any stock that has been acting better than
the general market in a downtrend, when a recovery starts.
