Heads Up…Resistance

  • July 2, 2001
  • Greg Che

As a trader, whether it be
short term or intermediate term,
one must be cognizant of support and resistance levels. These levels
can come in the form of prior highs and lows, moving averages
and even retracement levels. If you recall, I wrote about Black Box
Corporation (BBOX)
a couple of columns ago. BBOX broke out of an ascending symmetrical
triangle,
and since then has been bouncing around unable to move above the 72
range. The reason is it is hitting a resistance level made during the
week of July 14, 2000…almost
one year ago.

If you look at the weekly
chart of BBOX below you will see that July 14, 2000 bar has a large
red body. The mid point of the bar is acting as a resistance level. In
order for BBOX to continue its move up, price must close above the mid
point of the candlestick or 72.44.

I have found combining
multiple time frames in your analysis is important. In my opinion, a
weekly chart enables you to
get
a "near true" assessment of how the market is going
to act,
and the daily provide us with a confirmation as well as entry into a
trade.

Some stocks to look at which
are showing some constructive patterns and good fundamentals.

Cheesecake Factory (CAKE)
working on the right side of its 20+ week base.

Corporate Executive Board
Co. (EXBD)
is basing. The companies earnings have been growing as a steady pace,
the three year earning growth rate is 154.98% .

Corinthian Colleges, Inc. (COCO)
has been moving up the right side of its 4 month base. The stock looks
poised to test its high.

Among the
exchange traded funds which gained were the WEBS – Spain Benchmark (EWP)
which tacked on 2.8%.

Gaining also
was the Morgan Stanley Internet Street (MII)
which rose 2.5%, followed by the WEBS -Italy Benchmark (EWI)
which gained 2.4%.

Losing ground
among the funds were the Oil Services HOLDRs Trust (OIH)
which lost 3.6%.

Following the
downward route also, was Ishares Russell 2000 Index (IWO)
and (IWM)
which shed 3.3% and 2.2% respectively.

Remember that
all securities are risky. In any new trade, reduce your risk by
adjusting position size and placing open protective stops 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 Loren’s lesson, Risky
Business.