Memories of CS

Some traders have a small collection of stocks whose
personalities they’re familiar with that they trade over and over again.

This philosophy throws out the standard rule of thumb which is focus on stock
selection and continually rotate into whatever the leaders are. Many of the pros
who contribute to TradingMarkets.com advocate doing this by combining relative strength with
earnings and revenue growth.

But this other approach of just trading in and out of few stocks–this is
something I’m familiar with because I used to do that myself repeatedly years
ago with a stock called Cabletron
(
CS |
Quote |
Chart |
News |
PowerRating)
.

Brocade
(
BRCD |
Quote |
Chart |
News |
PowerRating)
reminds me a little of CS. In some respects, it’s
exhibiting behavior that is fairly consistent and reliable.

Look at how consistently it is has bounced off its 50- and 200-day moving
averages in recent months. Today’s breakout to new highs on 200% of daily
average volume came off a swing that originated from BRCD’s 50-day moving
average two weeks ago. Obviously, patterns such as these cannot last forever.
Too many people see the pattern and start trying to anticipate it; they
“cheat” or enter in early. When enough people cheat, the pattern tends
to disintegrate.

This does not appear to have happened yet in BRCD.

Have a great weekend,

Eddie