The rally that never ends! Thanks to the market’s recent rally, a lot of stocks are now moving back above key levels that they had previously broken below. This should be a sign of higher prices for those stocks, even if those moves are only temporary. One stock of many that has broken back above a resistance level would be that of Synopsys, Inc.
Synopsys, Inc. is engaged in providing technology solutions used to develop electronics and electronic systems. It supplies the electronic design automation software that engineers use to design, create prototypes for and test integrated circuits, also known as chips. It also supplies software and hardware used to develop the systems that incorporate integrated circuits and the software that runs on those integrated circuits. Its intellectual property products are pre-designed circuits that engineers use as components of larger chip designs rather than redesigning those circuits themselves. It also provides technical services to support its solutions. Its products and services are organized into four groups: Core EDA; IP and System-Level Solutions; Manufacturing Solutions and Professional Services.
Please take a look at the 1-year chart of SNPS (Synopsys, Inc.) below with my added notations:
SNPS has an important, long-term price level at $26 (green/red) and another level up at $28 (purple). After breaking below the $26 level in June, SNPS has rallied back up and hit that $26 level as resistance several different times. Last week, the stock broke back above the $26 level. Since a market pullback should be approaching, traders should watch SNPS for a possible pullback to $26.
The Tale of the Tape: Now that SNPS is back above $26, that level should act as support on any pullbacks. If that does in fact happen, a long trade at $26 might be made with an expectation of a run to $28. A break below $26 would negate the forecast for a move higher and a short position could be entered.
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