Checking the Closes
In my August 10, 2000 piece, I talked about how
important it is to keep track of stocks that are exhibiting strength in a weak
market. That way, you’ll have a potential list of long-side candidates if the
market stages a recovery.
One way to quick way detect strength is to watch how a stock behaves when it
penetrates a significant support level. An interesting case to study occurred in
Sun Microsystems
(
SUNW |
Quote |
Chart |
News |
PowerRating) on Friday.
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The market opened weak and Sun Microsystems quickly plunged below a trading
range that had been established over the previous three days. Friday’s
early-session plunge followed through on SUNW’s previous negative closes near
the range-lows of the two previous days.
But during the second hour of trading, SUNW made a quick recovery back above
the lows of that three-day range. If SUNW closes above this level, it would be a
stronger indication of strength than if SUNW had merely bounced from support
without first penetrating it. That’s because this kind of move usually shakes
out weaker traders and clears the path for a more sustainable drive upwards.
The one missing factor is volume. It doesn’t help the bullish argument that
volume was light on today’s intraday reversal in SUNW. Nevertheless, SUNW
is a stock you’ll want to keep your eye on if the market firms up over the next
few sessions.
Have a great weekend,
Eddie