Profit From Wide-Range Days

Sepracor

At first glance, Sepracor looks very bullish: It ran up from a $7.50 low last December to an intraday high of above $26 yesterday. But a closer look at the action has me thinking that it's time for the bulls to take profits. With more than four times normal volume yesterday, Sepracor was the subject of takeover rumors. Those rumors may or may not prove true, but I'd be inclined to take profits if I were long. After all, for every buyer, there's a seller -- and all of that aggressive buying was ultimately met with selling. There's no sense being a hog.

Equifax

Here's an exercise to see how volatility squeezes occur. Count back 20 days from yesterday's breakout and notice where virtually all of the closes were: between $23 and $24. So what finally happened to the Bollinger Bands last Friday? They reflected that narrow trading range by tightening into a squeeze. This volatility squeeze only lasted a day because Equifax broke higher on a wide-range day, tagging the upper Bollinger Band. The other indicators -- the relative strength index, or RSI, money flow and accumulation-distribution -- are all bullish.

The only thing that concerns me a bit is volume. I'd like to see increasing volume accompany further price advances. However, price is price. I know several very reputable traders who pay virtually no attention to volume and do quite well. Any longs might want to consider putting a stop just beneath $24. If price drops back below prior resistance, this breakout was probably a fake-out.

---

Dan Fitzpatrick is a freelance writer who trades for his own account. His columns focus on quantitative strategies for trading and investing. Fitzpatrick is a member of the Market Technicians Association and authors The Stock Market Mentor, a newsletter focusing on the proper use of technical analysis for trading and investing. At time of publication, Fitzpatrick held no position in any stocks mentioned, though positions may change at any time. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. While Fitzpatrick cannot provide investment advice or recommendations, he welcomes your feedback.