Regardless of the direction of the general market, some stocks will move in
the other direction.
While INTC and the semiconductor stocks are breaking down, other stocks
continue to break out to new highs.
As a general rule, I like to buy strength and sell weakness.
The breakout may be to new 52 week highs, new monthly highs or any time
frame that shows a continuation of a stocks current trend.
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 Impath Inc. (NASDAQ: IMPH).
Here is a stock with a pattern of breaking new highs, then consolidation.
It will then break new highs and then consolidate again.
On Friday, while the world was focused on INTC, IMPH started moving up and
broke again to new highs.
The entry should have been in the 54 area.
If IMPH consolidates back to 54, I would buy it.
I would place a stop at 52 �.
IF it keeps running, I missed the trade and will look for similar looking
chart patterns.
Focus on winners if you are looking for winners.
