Regardless of the direction of the general market, some stocks will move in
the other direction.
We are very oversold in the general market and a bounce soon can be
expected.
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.
This may be the case for this example.
Support, 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's look at Oracle Corp. (NASDAQ: ORCL).
This stock is doing what I hope the NASDAQ does.
ORCL had a big up day last Friday.
Early this week, ORCL retraced the gap of last Friday and yesterday and
today moved higher.
With big economic news coming out in the morning, we should see if ORCL
will continue higher.
If ORCL breaks to 82 �, I would Buy the stock.
If a long trade is entered on the break, I would place a stop at 80.
