Assuming you haven't been anticipating this resumption of the uptrend, you might consider $28 as a key level. On Sept. 4, the stock gapped up strongly to $29.04 and was crushed almost immediately by strong selling. But since that time, the stock has pulled back only marginally, and on declining volume. What does that mean? Well, make of it what you will; but this type of action indicates a lack of concerted selling.
Yes, last Tuesday's big gap up -- likely on pure retail buying -- was quickly sold into. But this happens every day on large gaps in price. But if the strength of the stock was due solely to knee-jerk buying by uninformed traders, then there should have been some follow-through on that selling pressure. There wasn't. Instead, the stock is really firm, revealing an underlying bid on the stock.
Now, prices go up ... and prices go down. But from a purely technical standpoint, the short-term support is down at $26.47 -- Monday's intraday low. We'll know that we're wrong about this underlying bid if the stock falls below that level. That's not a bad risk/reward profile for this trade.
P.S. Will you be there when Cramer makes his next move?
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Investing Fed Transparency Clouds Over 9/11/2007 9:20 AM EDT And confusion and uncertainty emerge. Here's where it could lead.
At the time of publication, Fitzpatrick was long Cree, though positions may change at any time.
Dan Fitzpatrick is the publisher of StockMarketMentor.com, an advisory newsletter and educational forum dedicated to teaching effective risk management and trading methodologies to aspiring traders and investors. He is a former hedge fund manager and a member of the Market Technicians Association, and he now trades from his home in San Diego, Calif. While Fitzpatrick holds various securities licenses, he does not give recommendations to buy or sell stocks. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. He appreciates your feedback; click here to send him an email.
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