Breakout Failure In Sun Microsystems
Over the weekend, I overhead an interesting
conversation. A broker approached her client who happens to be a friend of mine.
She told this friend of mine that she intended to buy shares of Intel
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PowerRating), Cisco
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Oracle
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PowerRating) first thing Monday morning. She had observed that
these stocks had tanked Friday to cheap levels and had recovered intraday. A
great bargain hunter’s opportunity was at hand.
Today, we had classic whipsaw action which blindsided many traders, both
professional and non-professional with a 180-degree reversal to the downside in
big-cap techs. Welcome to the wacky world of trading.
 Jeff Cooper has often said that one of the most explosive signals you
can get occurs when there is a failure of a widely followed pattern. The classic
one-day reversal to the upside Friday probably caused one of the most
universally felt collective sighs of relief among market participants. Over the
weekend, traders, brokers and fund managers were probably saying to themselves,
“We’re saved!”
So when this collective expectation is shattered, conventional wisdom would
have you expect a proportional reaction in the opposite direction because the
excessively jubulant have been thrown into a state of confusion and hysteria.
The chart of Sun Microsystems above points out the hairiness of
things in the real world.
Tomorrow,