The Difference Between a Technical Opinion and GBS'

What a week, huh? Me? I just stuck to my strategy ... which basically had me sitting on the sidelines absorbing a few body blows. Nothing serious, though, and I was kind of pleased with my performance because of one simple thing: I didn't do anything stupid!

Now, in the short term, that's not always a winning strategy. But in the long term, well, I still like my odds. More on all this gibberish, though, on Monday.

As for today, a few key thoughts: CNTL + P and [e-mail]. The former should get these newfangled, pop-up charts to print. The latter is who you contact if you have a problem!

Xircom

GBS, Happy New Year and continued success!

I realize that I need to pay closer attention after reading about your trading day; I'm obviously a mess. Acknowledging that there's more than one way to skin a cat, I really only have one gripe with your system, and it may be more than offset by the amount of time you don't have to spend watching each tick. Time is money and quality time is money in the bank. I like naps, too.

My gripe: I don't like selling out of a winner at 5%. Well, when it's making that, frequently it continues to do so. You have to watch it more closely (all those Internet day traders, messin' up everybody's efficient market!).

But why cash out at 5, when a winner that's moving to new highs often goes up 10% to 15% before it takes a breather?

Really like the new site and the way you're doing your charts.

If any of my questions generate activity in your synapses, maybe you can take a minute and look at XIRC.

Don't remember why I bought it, back around 14 or 15, but I held through the double bottom and added on the break of the double top. Now I've got to figure out when to sell it. Thanks,

Russ Miller

Russ, thanks for the nice words.

On holding past the 5% mark, I fully agree: that is a wonderful strategy in a surging bull market, and in that environment I will normally lag folks who hold out for more.

On the other hand, you just never know when a market will turn, or a stock will gap down (see Advanced Micro Devices (AMD Quote) and Eastman Kodak (EK Quote) on Jan. 14).

I guess I err on the side of conservative, and what I think works best in ALL markets, not just the ones that go straight up.

As for Xircom (XIRC Quote), see the attached chart.

Click here for a XIRC chart

Sunbeam

Gary,

As a fellow technical analyst, I genuinely enjoy your column. As I have yet to find a trading partner like Wesson, I was hoping that perhaps you could give me your thoughts on what appears to be a textbook bullish pennant formation in Sunbeam. Notice the spike from $5 to $7 on heavy volume and the dry up in volume during the formation of the symmetrical wedge. Based on the size of the initial move, a move to $10 could be in the cards on a break-out above $8.

Your thoughts are greatly appreciated.

Brett Nelson

Click here for a SOC chart

Tech Data

I have a question about the TECD chart: On Dec. 23 the stock closed within 50 cents of its 52-week low in mid-June (about 15% below its previous close) on volume of 5.6 millions shares, way above its average volume. It then steadily ascended back up to regain nearly all its loss by the end of the year.

According to the GBS Classic, shouldn't this stock have been a good candidate for shorting the next morning? What have I missed here? Is it the fact that the stock didn't actually break the 52-week low or something else?

Rick Marianetti

Click here for a TECD chart

Ethan Allen

Except for a relatively disastrous purchase near the top, I've done very well in Ethan Allen. Was wondering what one of your charts say on it?

Andy Pearlman

Click here for a ETH chart

Resistance

Dear Gary,

Found your take on Cendant interesting. I agree that the stock looks ready to take off above $26, but knowing CD's history, don't you have to worry about the zillion shares of overhead resistance? Or do you assume that most of those are already out of the stock? Or don't you care? To me this seems different than a break to a NEW high where there are no resistance issues. Any thoughts?

Stephen Reinhold

Stephen, your point is well-taken: I always care about overhead resistance! I guess the subjective part, though, is gauging how much of this overhead resistance has vanished. There's no clear-cut way to do that, obviously, but you can get a sense by looking at the steepness of both the decline and the advance.

The thing I liked about Cendant (CD Quote) was that it was taking its sweet time working back up to former highs. I generally think that's good, as the longer a stock takes to climb, the less chance there is of a lot of ticked off former buyers hanging around! Again, it's a judgment call, and I guess falls into the "art" part of chart reading.

theglobe.com

Seeing that most of the Internet IPOs come out high, dip and make double or triple bottoms, than take off up past their IPO price. What is your take on the chart of TGLO?

I would say that the massive shorting of these stocks is the fuel that creates this chart pattern. To me, it is as if the stocks start at ground zero and are just so oversold that when buyers come in or news hits, the stock has to get back to ground zero, that being the IPO price.

Since TGLO basically debuted at 90, it throws everyone's perception of it, out of whack. It is no different than a stock coming out at $1, going to 25 cents, than going up to $2 after a few months. Since TGLO went from $97 to $27, it is distorted, but the dynamics of the trading are still the same. TGLO is so far negative, it has to get back to $97.

Thanks,

Rick Brown

Click here for a TGLO chart

Candlesticks

Dear Gary, Is there any reason you seem to use candlestick charts rather than bar charts or point and figure?

Do you find there is a particular charting type for short term as opposed to long term?

Richard Rubin

Richard, the primary reason I use candlestick charts is that the "coloration" of the bars tends to give me a better overall feel for the stock than I get from bar charts. As for point and figure charts, I never used them, so I can't say if they'd be better or not. Really, though, I think it just depends on what kind of charts you learned on, and what you feel comfortable with. I was "raised" on candlesticks, so that's probably the real reason I use them.

P Com

Could you take a look at P-Com, Nasdaq symbol PCMS? For the last week or so they have had huge volume and good appreciation. Now that they are over resistance of 6 it looks like the next resistance may be the 200 day MA at 10. Then there's nothing to stop running to around 18.

Thanks, and have a great 1999.

Rich Rodger

Click here for a PCMS chart

Wolverine World Wide

Dear Gary,

I enjoy The Street.com very much and have found it to be quite useful. I am also trying to learn the art of technical analysis and find myself reading your columns (which are extremely helpful by the way) regularly. I was wondering if you could take a look at the chart for Wolverine World Wide and give me your take. I see a nice double bottom at 9 and then some sideways movement. I have been wanting to enter this stock for some time. Could now be a good time? Thank you in advance for your time and assistance.

Kevin Daniell

Click here for a WWW chart

Gary,

Mac Questions

Love your column! Here are some questions for you: I have a Mac (I'm a graphic designer by day) and most charting software is not Mac compatible. In my paper trading, I have been using the charts I can get online at various Web sites. Are these charts good enough to base trading decisions on? In my admittedly brief stint of paper trading, they seem to be working out fairly well. If online charts are good enough, who has the best ones? My second question has to do with the charts you examine in tech forum.

For example, you recently put up a chart of Western Digital and said you thought it looked good as a long. But if I understand your method correctly, WDC is not a trade you would make on the long side, because it wouldn't have shown up boldfaced in IBD -- its EPS is only 11.

Is my understanding accurate or have you started to screen your long picks differently?

Thanks for your help and good luck with your move!

Bonnie Harris

Bonnie, thanks. With the move, I need all the luck you can throw my way!

As for your questions, let me take them one by one.

On the topic of best online charts, I still defer to www.bigcharts.com. However, many people like the charts at www.clearstation.com, so it's your choice on that one.

On Western Digital (WDC Quote), let me clarify because the answer applies to nearly all charts I mention in this column: When I say a chart looks like a good long (or good short), I'm speaking primarily as an objective technician, not as GBS, the Trader. So, you're absolutely right: I liked the chart of WDC, but as a technician, not for my own methodology.

As for the use of Investor's Business Daily's EPS, see my latest thinking in my Dec. 7 and Dec. 4 columns.

Monsanto

Gary,

If you get a chance I would love one of your charts on MTC. It appears to have great potential for a breakout but it just lugs along.

Your comments would be appreciated.

Regards,

Bob Simonson

Click here for a MTC chart

Oakley

Gary,

Can you check Oakley? In addition to a discussion of the particulars of this stock, can you discuss how, if at all, you bring seasonal chart/price patterns into your trading?

Look at this stock over the past few years. When you remove the big break it had from its highs, you have a relatively simple annual/seasonal pattern of a sunglasses maker whose stock goes low in winter when skies are grey and high in summer, making stock-market hay while the sun shines.

With all that and the chart in mind, is 8.5 support? Is this thing a good buy to hold to July/August of 1999?

The chairman is buying stock hand over fist.

Let me know.

Michael Nevins

Click here for a OO chart