Pure Momentum
Even before the dawn of the
“momentum trader era,” traders had spent much of their time pouring
through charts of stocks with strong established trends.
Unfortunately, the markets don’t always accommodate
us with those nice steady upward ascents we’d all like to see. The highly
volatile markets we’ve been experiencing over the past few weeks are a case in
point.
When all you see are short, explosive bursts in
any which way, you know you either have to stay on the sidelines or change
your strategy.
The following charts of Brocade
(
BRCD |
Quote |
Chart |
News |
PowerRating)
provide an interesting case study of a purist’s momentum play off such an
explosive burst. Before the market opened, we observed the following in TradersWire:
09:23:42
Brocade (BRCD)
closed near the top of its range on Friday on heavy volume. That was the
second accumulation day in a row after BRCD catapulted from its 50-day moving
average. Some traders may look for a carryover from last week’s momentum to
thrust BRCD to a breakout to new highs. BRCD closed at 200 1/8.
Two hours
later after the market opened, we were able to make the following observation:
11:26:12
Follow-up to 9:23 story on Brocade (BRCD)
As suggested in our preopening story, BRCD is following through off Friday’s
strong close and is trying to break out to new highs. BRCD is up 12 at 212
1/8 and has a TradingMarkets.com
3-month RS ranking of 94.
BRCD’s action on Monday was a simple
case of momentum begetting momentum. There were no fancy chart patterns or
bounces off support. It was just a case of a stock that was in motion Friday,
following through on that momentum into Monday. Here are a three things to look
for in order to make the most of these opportunities:
-
Unusually high volume on price
surges. -
An expansion in trading range
relative to recent daily ranges. -
No clear resistance levels that
might be an obstacle to a healthy gain from your entry point.
Until tomorrow,
Eddie