Regardless of the direction of the general market, some stocks will move in
the other direction.
I do not like to play a hero picking bottoms, but rather wait for a turn.
We are seeing some stocks turn, while others continue to falter.
I actually like to buy highs. Because if believe that stocks hitting new
highs usually continue to hit more new highs.
The new high can be weekly, monthly or yearly highs.
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.
One interesting pattern that traders see after a breakout, is that the stock
or index retraces a part of the initial move by about 50%. If the 50%
retracement does not hold, the stock or index can still be in a trend if the
previous breakout resistance holds.
Let look at Tellabs Inc. (NASDAQ: TLAB).
Despite a good move over the past couple of days, TLAB continues to move
higher in a market that was weak today.
The stock is overbought, but when a stock moves this strongly, I take
notice.
I would Buy TLAB here as it continues to break resistance and move higher.
I would place a close stop at 57 �.
If TLAB opens down in the morning, do NOT take the trade.
