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Strategies & Market Trends : Continuing the IFMX discussion and more...
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To: Melissa McAuliffe who wrote (144)9/9/1997 5:56:00 PM
From: Robert Graham   of 206
 
By the way, did you notice how important momentum and S&R levels were with trading PSFT? The price rided up against the resistance at 61 for a few *days*. This is ample time to consider the situation and stay in or exit. The price was softening up along with the volume dropping off which is a sure warning signal. Also, it was due for a downcycle because it went directly from a downtrend to trending upwards without consolidating due to the breakout. This may be when PSFT consolidates before establishing a bona-fide uptrend.

Momentum, knowledge of support and resistance levels, intelligently chosen options, and basic tape reading skills are IMO important to the success of short term option trades on stock breakouts. Note that this has nothing to do with fundamentals or P/E or PEG. It also helps alot if it is a well-followed stock in its industry, an industry that is strong and trending upward. An indicator of the following for PSFT is the monthly volume turnover for which is over a healthy 30% for this stock. An uptrending 50 and 200 MA average helps alot too.

The next test for support will be its 50 day MA which is at about 58. If it breaks through this, then the next support is the significant resistance line at 56. As long as it stay above 56, PSFT will be in a good position to start an uptrend. If it bounces off of its 50 day MA, then PSFT is probably starting its longer term move up.

I will buy back into PSFT if it convincingly bounces off of its 50 day MA by purchasing back at a lower price the option that I traded. Otherwise, I will wait it out to see what developes.

Bob Graham
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