Cisco
Systems (NASDAQ: CSCO)
Market Call™ for January 16, 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.
The rallies in the market have been failing. There is great hope that the
recent interest rate cut and future cuts will propel the market higher over
the next few months. But, this column deals in the short term and is geared
to the day trader looking at stock moves in a smaller time frame.
We are using 30 minute bars and advice readers to have real time software
that can produce the indicators we use here to help them with their trading.
I look at primarily the MACD, Moving Averages, Momentum, Channels and
retracements to anticipate moves and most importantly manage risk.
Keep losses small and let profits run!
You cannot hope a market up or down. You look at charts to help measure
moves and seek to determine turning points.
MACD “Moving Average
Convergence/Divergence”
The MACD (“Moving Average Convergence/Divergence”) is a trend following
momentum indicator that shows the relationship between three moving averages
of prices.
This method can be used for any time frame. It could be 5 minute bars, 15
minutes bars or daily bars. Many traders will also trade in multiple time
frames using a longer time frame for trend, and the shorter period for entry
and exit.
The MACD is the difference between a 26-period and 12-period exponential
moving average. A 9 period exponential moving average, called the “signal”
(or “trigger”) line is plotted on top of the MACD to show buy/sell
opportunities. On the charts below, the MACD line is the green colored
line, and the trailing, slower moving line is the signal line. Some
technical analysis programs will show the MACD as a histogram bar.
There are three popular ways to use the MACD: crossovers,
overbought/oversold conditions, and divergences.
The most common use is as a crossover method. Using this interpretation,
the trading rule is to sell when the MACD falls below its signal line.
Similarly, a buy signal occurs when the MACD rises above its signal line. It
is also popular to buy/sell when the MACD goes above/below zero.
Some traders will use MACD as an overbought and oversold indicator. When
using the indicator in this manner, when the shorter moving average pulls
away dramatically from the longer moving average (i.e., the MACD rises), it
is likely that the security price is overextending and will soon return to
more realistic levels. MACD overbought and oversold conditions vary from
security to security.
The other way some traders use MACD is to spot divergences from an
anticipated movement. Since there are no indicators or patterns that work
all the time, reactions against the anticipated move can signal a major
move. A bearish divergence occurs when the MACD is making new lows while
prices fail to reach new lows. A bullish divergence occurs when the MACD is
making new highs while prices fail to reach new highs. Both of these
divergences are most significant when they occur at relatively
overbought/oversold levels.
I will also use MACD combined with the breaking of support. Support can be
defined differently depending on the strategy. I like using the lowest low
and highest high of the last 20 bars depending on my time frame or a change
in moving average direction.
Let’s look at Cisco,
CSCO.
After a downtrend in late December, CSCO moved up from the 32 � area after
the Fed interest rate cut to 44 �.
This past week CSCO attempted 2 rallies. The most recent rally from
Thursday morning failed again in the 40 area.
This 40 high is about a 62% retracement from the low of 32 � to the 44 �
high.
The action Friday was sloppy with CSCO closing near its low and just about
to take out the low of the day.
The MACD indicator already has us out. The Moving Average Crossover is
about to signal a Sell. A support at 37 11/16 is about to be broken.
Believe what you see. I would exit longs on any morning weakness. An
aggressive trader may want to Short CSCO here.
If a Short is entered, I would place my close stop at 39 �.
Do NOT short if CSCO gaps up Tuesday morning.
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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 15, 2001
Published By Tulips and Bears
LLC
