Trading on Trend Lines, Not Headlines

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Everyone has his or her own reason for trading. That's what makes the market so fascinating. A collective group of individuals, each with the power of independent thought (yet with a tendency toward herd mentality), push and pull on the same securities for different reasons.

People interpret news differently. Rarely is a significant market move attributable to a single news event. It happens -- and will likely happen as the war grinds to a conclusion. But don't count on being able to capitalize on the news for consistent profitability. Instead, use squiggly lines.

Today's charts include Linens 'n Things ( LIN), Argosy Gaming ( AGY), Beckman Coulter ( BEC), Unocal ( UCL) and Aetna ( AET).

Linens 'n Things

Linens 'n Things looks like a good short. Yes, it's at the bottom of its trend channel, which might lead to a bounce. If such a bounce occurs, then the prudent bear would wait for a better opportunity to short at higher prices. However, I think yesterday's close below a psychologically important $20 level could lead to further declines, especially if the broader market is weak.

Argosy Gaming

There's no fooling around with Argosy Gaming. This stock had a heck of a run in March, but it got its comeuppance on April Fool's Day. Resistance is at $20, and Argosy needs some rest before pushing higher. I'd look for a pullback to around $17.50, with a stop just above $20. The relative strength index, or RSI, is resolving a 70+ reading by trading lower.

Beckman Coulter

Unlike the rest of the market, Beckman Coulter hasn't been causing shareholders to lose sleep. It's just had a nice, steady uptrend for the past few months. Now, price has finally intersected with the declining 200-day moving average, and the battle is raging. At this point, it looks as if the bulls are going to push Beckman Coulter up above this critical bull-bear boundary line. I'd wait for another close above the 200-day moving average before taking stock. But any decline back into the trading channel (as long as it remains above the middle Bollinger Band) is just another opportunity to buy.

Unocal

Unocal is yet another breakout -- this time, above the 50-day moving average. Volume is high, and the trading range is wider than normal, with a close right at the high of the day.

I would watch this stock carefully if it pulls back and tests prior resistance. A bounce off that level (around $27) would be an excellent low-risk entry (with a stop just beneath the 50-day moving average).

Aetna

I've featured Aetna recently, which had a fake-out and then caught a breakout. Now, let's see what the end of a move (at least, for now) looks like.

The initial headfake gave the impression of a downside breakout. That proved bogus, and the subsequent breakout above $45 led to a tradable rally. Now what? Well, Aetna traded as high as $50 and has now met apparent resistance.

I'm not sure I'd be inclined to short this stock, but I'd certainly be looking to take profits if I were long. Shorts should consider placing stops just above $50 because a break above that level will likely just set the stage for further gains.

During confusing and news-driven times like these, I tend to focus even more on charts and less on news. It simply doesn't pay for me to know what others are listing as the causes for market movements. I receive a lot of email -- a sincere thanks to all of my readers -- but much of it reveals conflicting interpretations of the same news.

For example, some readers are astounded at how well the war is going and want to buy aggressively. Others are grimly realizing that the war is going absolutely horribly. They don't understand why the market is not lower. Same information and different interpretations lead to different actions.

So, in the final analysis, I find much more utility in the squiggly lines than trying to game the news. Be careful out there!

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 and invites you to send it to dan.fitzpatrick@thestreet.com.

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