Investing Adventures

So yeah.. GME broke above the $60 resistance and pulled away to about $61 and change before pulling back the past couple of days. First, here are a couple of different charts, one showing a 5 minute time spread with GME on the “breakout” Tuesday and the other a daily spread with my signals as of this morning. Let’s start with the 5 minute time spread:

Note the volume on the resistance breakout. It’s about average when you compare the 5 minute volumes to the week prior. From what I gather, breaking resistance should carry a higher than normal volume in order to force the old resistance to become new support. In other words, low volume = not many buyers I think.

Here’s the daily chart before the markets open today:

A couple of things to note. First, the breakout we saw this week looks to be relatively light on volume which may not be a good sign. However, here’s my take on things. We’re currently in expiration week preceding the holiday season AND the end of the year so volume should be somewhat lighter than normal. Does this bode well for the $60 to become new support? I’m not sure. This is the first time I’ve had to deal with the markets and the holiday season so I guess I’ll find out along with the rest of you. A quick glance at the MACD shows the averages diverging from the trigger line in an upward trend leading me to believe GME may have some momentum behind it. From the slow stochastic, it appears there may be a cross in lines within the next couple of days, perhaps creating a mildly bullish signal. If the cross were to happen under the 20 horizontal, I’d be more inclined to feel very bullish with GME.

For now, I’m currently playing GME with a mildly bullish observation. If I can grab a couple of points from GME with my open calls, I’ll send them a letter thanking them for paying for my copy of Super Smash Bros. Brawl.

By the way, if you have any need for relaxation, pick up a Wii and a copy of Super Mario Galaxy. By far the best investment you’ll make in terms of mellowing out for a couple of hours a day.

Currently long GME Jan Calls

Being an avid gamer, I figured it’s about time I looked at GameStop (GME) from a technical perspective. Let’s take a look at the chart!

You’ll notice the HUGE run in GME over the past 9 months. GME’s practically doubled since May. From a fundamental standpoint, GME appears to be having a great holiday season with the Wii still in shortage, pricing on the PS3 lower, spurring software sales, and Guitar Hero / Rock Band. Fundamentally, GME is sound, but what about technically? Looking at the graph above, you’ll notice I’ve drawn what’s called an ascending triangle. Ascending triangles are normally a bullish pattern with a breakout about 2/3 to 3/4 inside the triangle. Notice how GME broke out around late November / early December. Normally I’d say this was a result of the technicals but if you recall, GME was recently added to the S&P500 I believe giving it an artificial boost.

At first glance, I’d guess GME breaks out sometime within the next few days to the upside if it can break the 59/60 overhead resistance level. There’s a huge demand for video games for all ages and in the end GME benefits greatly from it. GME also has NO exposure to the subprime mess, making it even more attractive! I’ll post some technical studies on GME later this week.

In our previous analysis, the general consensus from myself and readers is that EMC, upon breaking the neckline of the inverted H&S, may have some bullish tendencies. Now, let’s couple the initial chart reading with some indicators I’ve begun to use thanks to the instructors at Think or Swim. (Shameless plug, but TOS is by far the best broker I’ve used to date!)

Let’s go ahead and add three indicators to our EMC chart, the MACD, the Slow Stochastic, and the Money Flow Index.

Now, you (and I both!) should have a good understanding of how the MACD, SS, and the MF work. Investopedia has great articles on all three so we’ll go ahead and forgo a long explanation of the three. I’ll come back to that at a later date.

First, the MACD indicator. As you can see (and if I’m reading this correctly), the MACD (the solid black line) has crossed over the 9 day EMA, or trigger line (the red dashed line). When the MACD crosses the trigger in a positive way (i.e. the MACD doing the crossover instead of the trigger), this may signal a bullish trade. One indicator, at least in my opinion, probably does not give the whole story so let’s move on the next indicator, the Slow Stochastic.

The Slow Stochastic is made up of two lines, the %K and %D line. To keep things short, when the %K line crosses the %D line in an upward trend, that may signal a buy while crossing on a downward trend can signal a sell. What’s neat about the slow stochastic from the TOS classes is that if the %K line begins to diverge from the %D line, a bullish trend becomes more and more likely since stock prices are closing closer to their intra-day highs. With EMC, the %K line appears to be diverging from the %D line in an upward trend.

The last signal I was taught is the Money Flow Index. The money flow is just that. How much money are large institutions pouring/withdrawing from a specific stock. In this case, it appears that money is slowly flowing back into EMC after the harsh selloff a month or so go. Don’t fight the trend.

From the chart analysis to the different indicators, I see EMC going upward over the next month to two months. Within the next couple of months, from charting, I’d give EMC a price target of about $22.50 which is the difference between the low and the neckline added to the neckline / resistance level. If the trend is confirmed, it may be worth buying options about 3 months out in case you’re interested in jumping in just to give yourself enough time. EMC also has earnings in early January which may give EMC’s stock another pop. Good luck!

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!