These Two Stocks Look Poised to Reverse

  • July 21, 2003
  • Derrick Hobbs

It
looks like some sector rotation could be developing.
Rotation out of some of the big moving tech names and into health care and oil
service stocks. Tonight, I’ll focus on the possible rotation out of some tech
names. The two names I’ll use are
(
SOHU |
Quote |
Chart |
News |
PowerRating) and
(
NTES |
Quote |
Chart |
News |
PowerRating). Both rip-roaring
stocks to the upside, but have exhibited the traits I look for in a reversal
play. What you will find in each of the charts below are the following:

  1. An initial strong two to
    three day sell off into July 17. NTES sold off over 18%, while SOHU was down
    approximately 17.5% as well. In my world that is a large decline.

  2. After that sell off these two
    stocks have rallied back up into Fibonacci price resistance. Basically these
    stocks have rallied back to the .618 to .786 of the recent sell off.



Now, a short trigger would be
to go short below Monday’s (today’s) low with a stop above Monday’s high. If
triggered short I have identified Objective zones on each of these charts. On
the flipside let’s say we don’t get a short trigger or we do get a short trigger
and the stocks reverse back up…now what? Well, in that scenario I recommend
going long above Monday’s high as we have a high probability that once the .786
retracement is violated these stocks rally to at least the 1.272 extension
level. For SOHU that level is at 45.50ish and for NTES that would be at
44.00ish.

So there you go. If the transition out of these stocks continue to develop, look
for the short trades to pay off. However, if we have a strong upside reversal
and take out Monday’s high, look for a momentum long trade into the 1.272
extension levels.

Have a great night.


Derrik Hobbs

Thanks for the great feedback on the Book so far…

 


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