When Things Don't Go So Swimmingly

Nokia, Elan, Ziff-Davis -- and Smith vs. Cramer on whether volume really matters.
Publish date:

I know you're disappointed, and I'm sorry to say, but ... no swimming stories this week. In fact, there's not even a meet until late March. So I don't know what I'm going to do. Maybe work on my bleacher kicking, I guess.

But there are plenty of questions to keep me occupied. Remember, if you want to make it into my "finalists" bucket, you need to send in your first and last name. Also, take a stand, form an opinion, let me know what you'd like to do with your stock. I'll then tell you you're wrong, of course, but at least you'll see your question on



Okay, the last step is to send all matters to


Candlestick Maker

Hey Gary! First of all, thanks for an interesting column! I'd appreciate your comments on the following: 1. You say you always display your charts using candlesticks. But are candlesticks a consideration when there is a breakout from congestion? I mean, there are several patterns of candlesticks and some are more bullish (or bearish) than others. Do you need confirmation from a bullish (or bearish) stick, or do you simply go long (or short) whatever the stick? What are your opinions on candlesticks in general? 2. Do you have any specific rules as regards when to redraw a trend line? -- Oddmund Grotte

Oddmund, thanks for your nice comments.

Regarding candlesticks, I use them only to add context to the chart, not as an indicator. So, in short, if there is a break from congestion, it doesn't matter what the candlestick looks like.

On trend line drawing and redrawing, I only draw trend lines once, and that's when the stock is picked up from my scan as a candidate. If I then take that trade, I do not go back later and redraw the trend line. That kind of second-guessing would put me in a rubber room!

Getting Back in the Game

Dear Mr. Smith: I bought some Cree Research (CREE) - Get Report at 35 a few weeks ago. After holding a few days I sold at 37 because I did not like the volume, price or feel for the stock's movement. Looking at the chart I see a rounded top formation and wonder where a good re-entry point might be. Your thoughts would be greatly appreciated. -- Ivo Montes de Oca

Why the Pullback?

Hi Gary! I like reading your column. Very informative indeed. How would you analyze the Applied Materials (AMAT) - Get Report chart, given the 23% pullback during last few days? -- Mahi Galagoda

JD Edwards Finding Support

Hi Gary, Enterprise Software (ENSW) COs are having a tough year! SAP (SAP) - Get Report, PeopleSoft (PSFT) , etc. JD Edwards (JDEC) just released an earnings disappointment and crashed through a very solid base of support in the 19 range. A new base of resistance has formed that seems bulletproof at 15. How can I tell if this new base will hold, which would point to a great buying opportunity with the kind of upside we're all looking for? -- Charles Costello

A Cup and Handle

Dear Gary, I love your column and am new to technical analysis. How do you draw a long-term trend line for Nokia (NOK) - Get Report? A couple weeks ago you suggested that if it breaks below its 50-day moving average it has a long way to go down for support. I think it is going to build a cup with a handle pattern and break into new highs. What does the chart tell you now? Thanks for your time. -- KJ Greshik

Face-off on Volume

Gary, I'm having trouble figuring out what to make of the vastly different approaches to volume that you and Jim Cramer have. Last week he called volume a "nonindicator." I know you and Cramer have different personalities and trading styles, but this sounds like a night-and-day difference of opinion. Where do you think he's coming from, and why do you think he's wrong? With such mixed messages from my two favorite columnists, what's a young potential part-time-for-fun-and-profit trader to do? Thank you! Keep up the great work! -- Evan Lenz

Evan, let me set the record straight: Cramer is WRONG! and I am RIGHT! Ha ha! No, the beauty of trading is that everyone has his or her own opinion and everyone can be right.

My belief comes from extensive testing using different degrees of volume surge, and I've satisfied myself that volume plays a major role in determining the success of my trades. So, I'm in the volume camp.

I don't know the nuts and bolts of Jim's trading, but let's assume he does not believe volume has any impact. Could he be right? Of course, because volume might not be an indicator that works

for him

. Or perhaps it's just not part of his methodology. Or perhaps it is, but it plays an insignificant role.

This is no different, by the way, than moving averages. I don't believe in them, but others do. So be it: Whatever works for you is, by definition, correct!

Living with Elan

Gary, I like your analysis of stocks and read all the letters you receive. What is your analysis of Elan (ELN) ? I bought it about six weeks ago, and now I'm wondering if I made a mistake and should sell. It hasn't done much. Shot up to 78 one day and than right back down. Any opinions on this one? Thanks. -- Rosemary Shaber


Hate to seem like a sheep, but here I am deferring to the Gary god along with all the others. The column is that good. And, yes, my favorite, too (tied with Cramer, actually). Wondering if I could get your take on Ziff-Davis (ZD) , a stock I'm uncomfortably loaded up on while awaiting the company's spin-off by Goldman Sachs. Also, is there any technical advisory service on the Net that compiles lists and charts of stocks with good/bad chart formations? That is, all the stocks with cups and handles and other hints that breakout (or breakdown) scenarios are lurking around the corner. Thanks again. -- Mike Snow

A Quick Tech Take

Dear Mr. Smith, Recently, due to the pullback in PC stocks, I purchased shares of Compaq (CPQ) and Dell (DELL) - Get Report. I purchased on the basis of a long-term investment horizon and the belief that PC sales will surge in the long run even with lower pricing. As you are aware, there are numerous negative comments being made concerning the tech and/or PC area and a flurry of downgrades on several tech stocks. I would appreciate your input on the short- and long-term outlook for the tech sector, and more specifically the PC area. -- John Stevens

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.