YES I DO MEAN David Thanks.. With all the volume I looked up an old
post of David's that I found informative. You have probably read it
but some of the newbies may not have.Maybe JJ would like to read <g>!
Well Im off to watch my Cardinals wax the Dolphins later for now.
To: Alex Gaal
From: David Luckie
Jun 26 1996 1:57PM EST
Reply #248
Alex,
Remember that a test of resistance is a test of the will of sellers. Therefore, the bid
price is the one to watch.
You will likely see accelerating volume and a steepened climb toward the resistance
level. You don't have to have either present to indicate a test is occurring, but
increasing volume helps to confirm what's going on. As the stock moves toward
resistance, the bid/ask spread tightens. Moves up toward resistance are facilitated by
heavy demand from investors buying at the ask price. But dealers fill those orders by
buying at the bid. If everyone's buying and no one's selling, dealers move the bid up.
As an aside, this is often (but not always) a good indication of where the price is
going--if the spread is tightening, chances are the stock is about to climb. If the spread
is widening, chances are the stock is about to fall.
If you're inclined to do so, sell at the first indication of a failed test. Even if the test only
fakes a failure and ultimately pushes through after you sell, you'll get a chance to buy it
back at near your sale level, regardless of how high it goes on the initial leg of the
breakout.
The breakout consists of the all market makers' bid prices getting above the resistance
level. Following the initial breakout move, volume may slow down a bit and the stock
will continue to rise, but at a decreasing rate of increase. Shortly following the breakout
move, the stock will almost always return to re-test the former resistance as support in
what's known as a snap-back test. If the snap-back test fails and the stock's ask falls
below support, it'll snap back again and retest again as resistance.
1). If the completed snap-back fails and the stock stays below resistance, the move is
called a blow-off or suckers rally. This is why you should never buy on a breakout and
always buy on successful snap back.
2). If the snap-back penetrates support but the stock gets back above resistance in a
second test, the move is called a shakeout, and gets rid of the weakest holders of the
stock in preparation for a major move to the upside.
3). Again, you should not hold the stock on a failed initial test of resistance if you are
inclined to sell. If it looks like it's not getting through, sell it. The stock more than likely
will return to levels extremely close to the sale price even if it does the worst and gets
through after you sell it. Trust me. It almost always comes back to you.
I own the stock at $1.00 now. My stop loss is set to 15/16, and I'm a seller of half the
position on the first bounce off of $1.50. Good luck, and let's get rockin and rollin
here. |
