Money Where Mouths Are
Analyst opinions are opinions.
Institutional buying or selling represents opinion backed by real dollars. Which
“opinion” would you give greater weight to?
Nortel Networks
(
NT |
Quote |
Chart |
News |
PowerRating) dipped
initially on a downgrade by a Sanford C. Bernstein analyst, then reversed and
moved higher on strong volume. Analyst Paul Sagawa, foreseeing declining telecom
gear sales, downgraded Nortel as well as Cisco Systems
(
CSCO |
Quote |
Chart |
News |
PowerRating) to
“market perform” from “outperform.” Later in the session,
however, Merrill Lynch analyst Michael Ching reiterated his “buy”
ratings on the two stocks, forecasting 17-18% industry growth in 2001.
How does one sort out this debate?
Ignore the debate, and look at the charts.
It would be premature to call
Thursday’s trading action bullish for the intermediate-term trade. But Round 1
goes to the bulls. Now I need to see these stocks pass further tests in order to
make my list of potential buy candidates.
Shares in Nortel surged ahead on on
double normal volume. Not quite enough to qualify as an accumulation day since
trading activity did not supersede that of the prior session. However, the size
of Thursday’s volume and upside price reversal, obviously signaled strong
institutional money flows into the stock.
There’s nothing magic about moving
averages. But I use them as benchmarks to test a stock’s ability to overcome
overhead supply. I need to see Nortel cross above its 50- and 200-day moving
averages as well as its mid level (the halfway point between the stock’s
pre-correction intraday high and the intraday low of the correction). Nortel’s
midlevel, using the low set Thursday, is around 73 1/2.
In the ideal scenario, Nortel would
hold above Thursday’s low of 57 15/16 and forge ahead on strong volume,
including accumulation days, with pullbacks on light volume.Â
In other news, 3Com announced that
president and chief operating officer Bruce Claflin will become its CEO,
effective Jan. 1. The stock followed through nicely following Wednesday’s
gap-up price move on strong earnings. 3Com shares closed Thursday
within 5.3% of resistance at 19, encountered on Aug. 7.
All stocks, of course, are risky. In
any new trade, reduce your risk by limiting your position size and setting a
protective price stop where you will sell your new buy or cover your short in
case the market turns against you. For an introduction to combining price stops
with position sizing, see my lesson,
Risky Business. For further treatment of these and related topics,
check out the Money
Management area of TradingMarkets’ Stocks Education section.