Another Early Cheat
On longer bases, the intermediate-term
trader can sometimes find early entries below normal thresholds. These
trades are riskier because you’re still courting heavy overhead supply, but they
can work out. One candidate is National Semiconductor.
Chipmaker National Semiconductor
(
NSM |
Quote |
Chart |
News |
PowerRating)
Thursday reported Aug. 27 first-quarter operating net of 76 cents a share vs. 25
cents a year ago and analyst estimates averaging 65 cents, according to First
Call/Thomson Financial. Shares gained 2 to 46 1/2 on double normal volume.
As an intermediate-term momentum
trader, I prefer to go long stocks as they forge well up the right side of a
correction-recovery pattern or clear the base outright and move into new high
ground. I typically insist that such stocks surpass their 50-day and 200-day
moving averages as well as their mid levels. The point of all three tests is to
avoid sell-offs due to overhead supply as weak holders sell into rallies.
However, long-duration bases can wear
out many weak holders before a stock clears all three tests. I might look for
entry points in a stock that overcomes its 50-day and 200-day and crosses above
some intermediate mid level calculated on some resistance point within the
correction.
The mid level is calculated by summing
a stock’s pre-correction high with its post-correction low, then dividing the
result by two. In the case of National Semiconductor, the pre-correction high
was 85 15/16 set on March 9 and the correction low was 31 1/4 recorded on Aug.
3. That yields an mid level of 58 19/32.
But just looking at the chart, if I
formed a bullish take on the company and stock, I would consider an earlier mid
level based on the stock’s June 22 peak at 73 7/8 (see Point
A in chart). That would yield a new, lower mid level of 52 9/16.
National Semi, in my view, might be worth an earlier entry because of the longer
base and because gains over the past month have come on ample volume, the kind
of turnover one wants to see in a stock chewing through overhead supply.
Bear in mind, the mid level is not a
pivot point. It’s a prerequisite that a stock must meet before you look for
entry signals. Note that the new mid level, at this point in time, is below the
National Semi’s 200-day moving average. That still must be overcome.
All stocks, of course, are
speculative. On any new trade, be sure to reduce your risk by limiting your
position size and setting a protective price stop where you will cover your
short or sell your buy to cap your loss in case the market turns against you.