NEW YORK (TheStreet) -- EMC (EMC) ramped over 4.5% Thursday on its heaviest upside trade since October of 2010 amid conflicting reports regarding M&A talks between the company and Dell. The news-inspired breakout began with a huge upside gap that lifted the stock well above its heavy 200-day moving average. By yesterday's close, EMC had stretched its rally off last week's low to over 18% and had erased all of the August flush.
In the near term, the stock is becoming a bit overextended but is set up well for more upside. A healthy pullback will be needed soon -- and with it will come a buying opportunity.
Slightly above Thursday peak is a heavy resistance area. EMC topped in April and June near $27.75. In August, a more significant high was reached just above at $28. On Aug. 6, the stock moved past the April and June highs but despite a healthy surge in volume was unable to maintain the momentum. Two days later, the stock was in full retreat. The combination of these three monthly highs between $27.70 and $28 will be difficult to clear before a healthy consolidation takes place.
Thursday morning's breakaway gap just above $26 marks a key support level. If the momentum displayed yesterday fails to drive through the $28 level during an initial challenge, this gap will likely be filled. A consolidation here will allow shares to rebuild their strength for a move to new 52-week highs. Patient EMC bulls should keep a close eye on this level in the near term.