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ARCHIVE:    JUNE 1999-MAY 2000  

An InvestorLinks article
distributed every market day.

Apple Computer  (NASDAQ: AAPL)
Market Call™ for June 13, 2000
Contributed by Mark Seleznov, TrendTrader.com.

The purpose of this Market Call section is to educate readers in technical analysis patterns and indicators. As with all investment information, you need to research information and consult your financial advisor before initiating any strategies that are contained in Market Call.

Also, you must realize that as with all trading strategies, opinions can change quickly depending on market conditions and developments.

This column tries to present historical examples, potential set ups, and examples of entry and exit strategies.

Support, Resistance and Breakouts

Think of security prices as a war. It is a battle between a bull (the buyer) and a bear (the seller). The bulls push prices higher and the bears push prices lower. A buyer that feels an area has good value, will buy at that level. The seller that feels that a stock has reached fair value, will sell at that higher fair value price. The direction prices actually move reveals who has won the battle.

Remember when a trade takes place, a buyer and seller agreed to a price. There was a buyer and a seller involved in the transaction. The buyer feels the stock will go up. The seller wants to move on to another stock that he may feel will appreciate faster.

Support levels are the price where the majority of traders feel the value is a good buy.

Resistance is the level in which the majority of traders feel prices will move lower.

When the majority of traders and investors change their expectations, these support and resistance areas get violated and a new trend may be beginning. This can occur due to changes in expectation of earnings, new product development, change of personnel, cut backs or expansions.

One interesting pattern that traders see after a breakout, is that the stock or index retraces a part of the initial move by about 50%. If the 50% retracement does not hold, the stock or index can still be in a trend if the previous breakout resistance holds.

Let's look at an example of a potential breakdown in Apple Computer (NASDAQ: AAPL).

One important lesson I have learned is that the stronger stocks tend to stay stronger and the weaker stocks tend to get weaker.

The week ending June 2, 2000 saw the NASDAQ gain 19% and on Friday June 2, 2000 an explosive gain in many stocks on that day because of favorable economic reports.

For the week ending June 9, 2000, some stocks continued their gains, while others drafted lower back towards the prices the stocks where trading at on June 1 before the big gain.

What do you think people who bought stocks June 1 in anticipation of further gains will do if their stocks fall below the low of that day? I think many have stops in below those lows and that a breakdown of those levels may bring on selling of shares bought last week and even some new selling on those issues of disenchanted longs.

AAPL is another example of a stock that fits the pattern I just described.

On June 1, AAPL closed at 89 1/8.

On June 2, 2000, AAPL hit a high and over the past week or so, AAPL has been in a consolidation pattern.

However, AAPL is at the lower end of the range. Perhaps this is support in the stock and the stock will move higher. However, as it stands now, there are many new buyers who I believe will exit their position in AAPL if it breaks this support at 91.

If AAPL breaks 91 in the morning, I would exit longs. An aggressive trader may want to consider a short at 91 on Sell Stop Short.

I do not like tests of support. Usually stocks breaking multiple tests of support do very poorly once that support is broken. On the other hand, even if AAPL moves up from here, it will have selling resistance all the way up to 99.

If a short is entered, place a stop 93 �.

There many stocks that looks like this AAPL chart. Be aware of support and resistance levels in your stocks.

Chart courtesy of
 


Interested in adding Market Call to your website?
Click here for details: Market Call Information

Mark A. Seleznov is a General Securities Principal and Managing Partner of Trend Trader, LLC, a NASD, SIPC broker/dealer firm located in Scottsdale, Arizona. A professional trader for over 25 years, Mark was a Market Maker on the Philadelphia Stock Exchange, a Retail Registered Representative, and futures trader. Mark is an author and recognized expert in equity Day Trading. He conducts seminars in Equity Day Trading and offers his firm traders training and support. If his firm holds any positions in the public companies he writes about, it will be noted at the bottom of his article.

Market Calls is a daily syndicated column on trading by Mark A. Seleznov, Managing Partner of Trend Trader, LLC. For information on obtaining Market Calls for your web site, newspapers, or publication, contact
Trend Trader, LLC at 602-948-1146

Disclaimer: Trading in securities may not be suitable for all individuals. Consult your broker or other professional to determine your suitability. This is not an offer to buy or sell securities. The advice given above is of a general nature and should not be taken as a recommendation to buy or sell the referenced security.

 
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Last modified: March 17, 2001

Published By Tulips and Bears LLC