First Attempt at Technical Analysis: EMC Corp

As some of you know, I’ve been a fan of EMC both on the ride up, and sadly, on the ride down. So here’s my first attempt at using technical analysis to figure out where, if I were to invest in EMC, my entry and exit points would be.

Here’s a recent graph of EMC with some notes I’ve made:

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There are two things to note on the graph. First, I’ve highlighted three points in a gray oval shape. From what I’ve learned so far about TA, it appears that EMC is showing signs of an inverse head and shoulders pattern. The left and right ovals show the shoulders of the graph while the huge dip near 17 would be considered the head.

Now take a look at the horizontal line I’ve drawn near 20. This is considered the neckline if EMC is truly showing signs of an inverse H&S. It’s also a large area of resistance heading back a few months during the VMWare spinoff.

So if I believe that this is an inverse H&S (a bullish pattern), how would I trade it? I’d first make sure the resistance / neckline is broken on good volume as compared to days and weeks past. Volume is important when breaking resistance as it can help show whether or not the resistance level will turn into a support level. if EMC does break through 20, I would pick up a position with the intent of closing the position if EMC were to drop below the 20. This is what’s known as the REE for all you Option Addict readers out there. An REE is short for the Raimo Entry at Exit. In other words, if the trade goes awry, you can exit with minimal loss.

So there you have it. That’s my first solo attempt at TA. Do you agree/disagree with the assessment? Let me know!

Jorge 6 December 2007 Equities, Technical Analysis
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