Tuesday, June 07, 2005

SIRI forming handle


SIRI has set up another low-risk buying opportunity after bouncing off of resistance a little above $6. Over the past few days the price has drifted down to the 10-day moving average on light volume, forming a handle. A buy at this point should be re-evaluated if SIRI closes below its 10-day moving average. Notice how the price and moving averages are all positively aligned and the 50-day has started sloping upwards. The RSI and MACD have also just turned bullish. Not to beat a dead horse, but it looks to me like SIRI may be at the very beginning of a long up trend. It is currently my largest long position, but if it drops below its 50-day moving average I will probably be out of it entirely.

It is important not to forget at this juncture the huge implications if the market rolls over right here. Stephen Vita has outlined where the S&P currently stands in relation to a head-and-shoulders top formation here at his Alchemy of Trading blog. The implications I'm refering to is the fact that the market will be vulnerable to a crash if it starts to point down. I hate to oversimplify, but from what I've seen, more often than not crashes will be preceded by downward moving prices that have already crested and rolled over. As long as prices aren't pointing down, the odds are much more favorable for your long positions.

My dad was a stock broker in the '80's, sort of like Bud Fox in Oliver Stone's Wallstreet, but without the corruption. He was getting his clients out of the market in the fall of '87, he had spotted the head and shoulders top among other things. He told me about a guy in the office who had over $1 million in options positions before the crash. My dad was with him when he went over what it would cost to liquidate the options, and the guy decided not to do it. When the crash happened, in less than a week's span the poor bastard had about $100k left. To this day my dad's favorite pattern is the head and shoulders top.

There are plenty of opportunities emerging for shorts right now. I shorted AAPL just a little below its 50-day moving average on the day that it gapped down. I'm about 2 points in the green on the trade in 3 days. Another short setup I'm watching is SBUX. SBUX is making an arch on the daily chart that often resolves in a waterfall slide-off. I'm watching for a convincing fall through the 50-day moving average to enter a short position.

1 Comments:

At 8:55 AM, Blogger Gordengekko said...

Jon-

I think you were right on GOOG but just early.

Gekko

 

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