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:
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!
Based on technical analysis, I would agree with your decision. I’m going to keep an eye on this one and see how we do!
Comment by Anthony — Friday, December 7, 2007 @ 6:55 am
Sorry to double post… I wanted to point out there are also other longer term patterns within the chart, it looks like it has a horizontal support around 17.50 and an upward trend on the top line. Thats usually a good sign too!
Comment by Anthony — Friday, December 7, 2007 @ 6:57 am
You can also look at earnings as an indicator which is what value investors look at. The company has 20% growth over the next year and trades at 27 times earnings, but if I am an institutional investor willing to pay twice the growth in terms of PE, that puts the PE at 40, multiply that by the current EPS and you have a stock price of $28.80 giving you your sell target.
Comment by James Wilcox — Saturday, December 8, 2007 @ 12:03 pm
I am right there with you on EMC.. still on the roller coaster
Comment by thewild1 — Saturday, December 8, 2007 @ 12:52 pm
The 17.50 support does seem to stem back from earlier in the year. I would also think that any price lower than about $17 would be a slap in the face for EMC either causing them to think EMC or VMW are completely worthless. VMWare alone I think is worth $13 or so per share. EMC is not worth $4 especially after the numbers the reported in the 3rd quarter with the 4th quarter normally the strongest in the tech cycle. We’ll see I suppose.
Comment by Jorge — Sunday, December 9, 2007 @ 11:18 am
When VMWare was above the $100 mark, I had EMC’s target closer to $30. It may take a few quarters before the markets realize how valuable VMW really is. I read somewhere that, in theory at least, for every $8 VMWare increases above a certain value ($80 or so), EMC’s share price should increase by about $1. But I agree with you. This is a great value play right now. A P/E of 40 really isn’t that far fetched for a company growing at your 20% stated rate. Hopefully the buyback begins to kick in bringing the shares floating around down a bit while increasing their EPS next quarter. They’ll blow estimates out of the water next report guaranteed.
Comment by Jorge — Sunday, December 9, 2007 @ 11:21 am
I rode that baby up, and then rode it all the way back down. It’s the worst feeling in the world. Couple that with being in the market about 3 months at the time and it almost caused me to find a decent CD to stash my funds in. The market will humble you and will do so quickly. As Chumbawamba would say, when you get knocked down, you need to get up again (well, something close to that anyways… man I’m old.. and I’m only 25!).
Comment by Jorge — Sunday, December 9, 2007 @ 11:23 am
Chumbawamba was one of the best one hit wonders ever. You’re right. Trading takes patience, and a lot of learning. I’m learning about it right now. Always start small. I’ve heard no one should ever start out with more than $3000 trading. Obviously unless you’re very wealthy and can afford to lose more.
Comment by Anthony — Sunday, December 9, 2007 @ 11:33 am
It’s also a great way to manage risk knowing that a wrong move can wipe you out completely. You may not be diversified though but then again some folks don’t believe in diversification.
Comment by Jorge — Tuesday, December 11, 2007 @ 12:59 pm
I’ll diversify 5 years before I’m ready to retire
Comment by Anthony — Tuesday, December 11, 2007 @ 1:32 pm
Which might be never if I don’t diversify!
Comment by Anthony — Tuesday, December 11, 2007 @ 1:36 pm
Hahah.. and that’s the dilemma. Diversify.. and perhaps sleep better at night… or don’t diversify, have some sleepless nights, but perhaps hit it big (or strike out hard). I’ve chosen not to diversify. Doesn’t matter with a day like today though…
Comment by Jorge — Tuesday, December 11, 2007 @ 2:05 pm
[...] at FatPitchFinancials has posted the 67th Festival of Stocks. This edition, my first TA attempt using EMC and my CPI article have made the cut. Just wanted to thank George for all of the hard work he [...]
Pingback by 67th Festival of Stocks Online | My Adventures into The Street — Monday, December 17, 2007 @ 6:38 am