Open
Wave Systems (NASDAQ: OPWV)
Market Call™ for February 1, 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.
Preserving Profits
I am neither a Bull nor a Bear. Short term trading permits profits in both
up and down markets. The key is always the exit of a current position and
watching for the set up before entering a position.
If I am Short, I need to be concerned with exit and possible reversal to go
long.
The MACD method tends to produce overbought and oversold signals that can
assist a trader in both areas.
With the Fed moving a � point on interest rates today (1/31/2001), the
market
did not convincingly give us a indication of which direction it was heading
next. With this in mind we must be tentative with any positions that we are
in long or short. Even though the general market may appear uncertain the
MACD may be trying to tell us something about our individual stock.
MACD “Moving Average
Convergence/Divergence”
The MACD 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.
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 Open Wave Systems,
OPWV.
After a recent rally from the 50 area, the MACD indicator is saying get out
of OPWV.
Also on the chart our shorter period moving average has begun to crossover
our longer-term moving average (a bearish signal).
I would exit long positions on OPWV if it were to break the 1/31/01 low of
68 � and reverse to a short position. I would remain short in OPWV until
both the MACD and our moving averages signaled a long in the stock. I would
not close shorts or reenter OPWV unless both of these signals confirmed a
buy.
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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,
without the prior written consent of Tulips and Bears LLC
is strictly prohibited.
Last modified: February 01, 2001
Published By Tulips and Bears
LLC
