As the market has rallied from the beginning October, some stocks have managed to get back up to their respective August breakdown points. Those breakdown points will usually provide strong resistance when approached. A stock that may be hitting that area of strong resistance now would be that of EMC Corporation.
EMC Corporation develops, delivers and supports the information technology industry’s range of information infrastructure and virtual infrastructure technologies, solutions and services. EMC provides information storage, back-up and protection, management, security, information intelligence, data computing and virtualization technologies, services and solutions. EMC operates in two business categories: EMC Information Infrastructure and VMware Virtual Infrastructure. EMC Information Infrastructure provides a foundation for organizations to store, manage, protect, analyze and secure information and enhance their advantage within traditional data centers, virtual data centers and cloud-based IT infrastructures.
Please take a look at the 1-year chart of EMC (EMC Corporation) below with my added notations:
As you can see from the chart above, EMC has a very important price level at $25 (purple). After struggling with the $25 resistance in January, EMC broke above that level and continued to bounce on it as support over the next several months. In August, EMC broke that $25 support and fell lower as one would expect. After finding support at $20 (pink) for a few months, the stock has rallied back up to the $25 level only to find resistance again over the last couple of weeks.
The Tale of the Tape: EMC has approached its $25 level again. For those traders waiting for an opportunity to enter a long position, EMC breaking above $25 would provide that trade. Short traders might want to enter a trade at the $25 with an expectation of a fall back down to the $23 level (teal). Other long trades could be made on a pullback to $23 or down at $20 if that were to happen. A short trade could also be made if the stock broke below $23.
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