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 an example of a potential breakdown in
Immunex Corp. (NASDAQ: IMNX).
One important lesson I have learned is that the stronger stocks tend to stay
stronger and the weaker stocks tend to get weaker.
Friday saw some Window Dressing in a number of stocks.
I am also interested in the stocks that they did not Window Dress.
One of those stocks was IMNX.
After a late day rise on June 26, IMNX drifted lower all week and is now
back at a support level.
Do we have support here again or will IMNX break down?
I like low risk trades.
I would be willing to play IMNX from the short side here with a very tight
stop at 50 �.
The trade would be to Short IMNX at the open and risk to the stop.
If IMNX does breakdown, this can be a very profitable trade with a small
risk.
