It's Thursday evening as I write this, and I barely have enough energy to pen this opening. But I couldn't figure out why I was so exhausted. And then it dawned on me: We're closing on our Connecticut home tomorrow! Now, when you're a seller, there's a lot less work to do for the closing. Therefore, my only explanation is that any closing evokes battle fatigue in me, stemming from my previous Maryland nightmare!
Or maybe I'm just menopausal. Whatever -- this week I err on the side of brevity.
Method to the Merrill
The chart for Merrill Lynch is interesting to me in that on Thursday and Friday, it broke above what appears to me to be clear resistance at about 80, closing at 85 9/16 on Friday. This also appears to be a GBS classic. From its previous trading pattern, can you see methods to estimate the likely size of the upsize move above 80? Bob Weber
Desperately Seeking Solutions
Can you provide analysis on two stocks -- Siebel and Network Solutions? I'm new to technical analysis -- can you recommend any good reading material? Thanks. Rama Krishna
. As for good reading, check out my
Dec. 2 column in the
You Better Watch Out
I'm relatively new to technical analysis, so reading your column is giving me new insight on how to read stock prices and possible changes in direction. One stock in particular is ATI Technologies. Richard Cooke
Intrigued by Inktomi
I have followed your technical analysis with interest and have been charting for a while. The Inktomi chart intrigues me. It looks like completion of head-and-shoulders pattern if the recent pullback drops to a 52 neckline. What is your take on a pattern like this? Dan Givney
Head and Shoulders Is for the Shower
Could you discuss at some point the implications of a head-and-shoulders formation? J. Rosen
I'm glad you asked because, as you can see in my answer above, I don't pay much attention to head-and-shoulders patterns. The theory is that if the "neckline" is broken, it's very bearish. And that might be the case, but what's really happening is that support is being broken. Therefore, instead of looking for head-and-shoulders patterns, I just look for support and resistance levels, which are much easier to figure out -- and, in my view, more reliable.
Hot, Hot, Hot
I was wondering what you thought of the Starwood Lodging chart. It looks like a breakout. Is it a good time to go long? Jason Young
The Broadcom Triangle
You are a genius of technical analysis and your genes are the stuff of which championship swimmers are made! Since reading your column, I have invested in several technical analysis books. Unfortunately, few are as fun to read as your columns. When I looked at your take on Broadcom a few weeks back, I thought I spotted a descending triangle. It now appears so, with the stock breaking down. I am crazy about this stock for the next few years. How would you determine when this short-term (my hope!) downtrend is broken and establish an entry point? Scott Womack
You are most kind. Trust me, though, I'm the same guy who said sell
about 200 points ago, so for that alone, the TA Mensa Society won't let me in.
And as for swimming genes, my girls' success has already proven one thing: They were fortunate enough not to be blessed with my aquatic ability!
Only the Finet
I am long Finet Holdings, an Internet mortgage company. At 2 1/4, it seems the stock has made a series of consecutive bull flags. The integrity of the upward trend line and 50-day moving average appears intact. Volume has increased significantly over the previous month. I was wondering about your view. John Walz
I am a newcomer to
and find it one of the best sites around. Thanks to everyone who shares their insight. Hope to get through your archives by Y2K. I have been looking at Insight Enterprises, a direct marketer of PCs among other things, since it announced its $1 billion sales mark. In looking at the financials, the only negative I can see is the 2% net, which would not bode well with the market downturn and capitalization. Also, there is a real yapper on the Yahoo! message board declaring doom and gloom, cooked books, the works. (Probably a disgruntled employee or significant short.) Anyway, it looks like it is poised to move back up after its recent selloff. In February, it had three times the normal shorts, and it currently has short interest of 2.1 million. It has broken through its low support. I would like to jump in on this low price to hold for the next six-plus months, but I'm wondering if there is more downward trending to go. Ben Carol
Doing the Wave
In recent weeks, I have seen several comments regarding the analysis of the Elliot Wave theorists. They are predicting that the current wave structure is such that the market will very soon plummet back to the October 1998 lows and then begin a long climb up to 13,000. Are these folks, sincere though they may be, modern-day astrologers, or is there any validity to their work? Neal Seacrist
The question you raise is appropriate and should be asked anytime your hear
prognosticator forecasting anything more than 30 minutes into the future. (Including me, by the way.)
My take on any of this stuff is to look at it from two perspectives: past performance and method rationale. Therefore, the first question is with regard to the Elliot Waver's track record. I suppose the most notorious disciple is
, and as far as I know, he's been calling a top in the market for the last few thousand points. Perhaps his other calls have been accurate, however, but regardless: Past performance is certainly one place to start.
But if you stopped at past performance, then stuff like the
indicator would be a great technical analysis method. That's why you need to examine the rationale behind the theory. Elliot folks contend everything flows according to waves and cycles, including the market. Is that a valid rationale? Who knows? Maybe it is.
From my own perspective, I'd certainly want something that adheres to the tenets of a solid and testable methodology. In that regard, the Elliot Wave theories probably fall short of my criteria. However, I'm sure Elliot Wave works for many traders, and if it gives them an edge and makes them money, then far be it from me to scoff.
Gary B. Smith is a freelance writer who trades for his own account from his Maryland home using technical analysis. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Smith also writes Technician's Take each Monday and Charted Territory, which appears every Wednesday.