Although the market has been on one of the biggest 1 ½ week runs in a couple of years, it can’t go straight up forever. My bet would be that the market is a lot closer to a pullback than to another 150-point run-up. And since a market pullback should be close, grabbing a short position could prove profitable in the short-term, while still being prepared for upcoming long trades. A stock that may be hitting an area of strong resistance, and have a great level of potential support, would be that of Broadsoft, Inc.
BroadSoft, Inc. is a global provider of software that enables fixed-line, mobile and cable service providers to deliver voice and multimedia services over their Internet protocol-based networks. The company’s software, BroadWorks, enables its service provider customers to provide enterprises and consumers with a range of cloud-based, or hosted, IP multimedia communications, such as hosted IP private branch exchanges, video calling, unified communications, collaboration and converged mobile and fixed-line services. BroadWorks performs a critical network function by serving as the software element that delivers and coordinates voice, video and messaging communications through a service provider’s IP-based network.
Before discussing potential trading opportunities, please take a look at the 1-year chart of BSFT (Broadsoft, Inc.) below with my added notations:
As you can see from the chart above, BSFT has a very important price level at $40 (navy). After struggling with the $40 resistance earlier this year, BSFT broke above that level and continued to bounce on it as support for the next 3 months. In May, BSFT broke back below that $40 level and fell lower as one would expect. The stock then rallied back up to the $40 level only to hit resistance again in July before selling off down to $21. On Friday, the stock made its way back up to the $40 resistance.
The Tale of the Tape: BSFT has approached it’s $40 level again, and with a market pullback due, a trader might consider entering a short position on BSFT at the $40 level with a stop placed above that level. For those traders waiting for an opportunity to enter long positions, BSFT also a previous level of resistance at $35 (green) which should be a level of support if the stock should pull back down to that level.
Before making any trading decision, decide which side of the trade you believe gives you the highest probability of success. Do you prefer the short side of the market, long side, or do you want to be in the market at all? If you haven’t thought about it, review the overall indices themselves. For example, take a look at the S&P 500. Is it trending higher or lower? Has it recently broken through a key resistance or support level? Making these decisions ahead of time will help you decide which side of the trade you believe gives you the best opportunities.
No matter what your strategy or when you decide to enter, always remember to use protective stops and you’ll be around for the next trade. Capital preservation is always key!
Christian Tharp, CMT