SCT Chart

[Phaedrus]

SCT has very convincingly broken out above the resistance level that had held for a year. This stock has been in an uptrend since giving a trendline break Buy signal in late 2001. There is a confirmed trendline in place. All lows of this uptrend have been above a 300 day exponential moving average - a Close below this ema would provide a good exit signal, as would a break of the trendline or a drop below the 20% trailing stop as plotted on the chart.

When a stock has been encountering resistance over a period of time, a "depletion zone" is created just above the level of that resistance, where there is a paucity of sellers. This means that the longer any given resistance level is in effect, the more explosive any breakout will be. The reason is simple. Put yourself in the position of holders of this stock that were wanting to sell at, say, $3.50 to $3.80. These people would have had an entire year to realise that, if they really wanted to sell, they would have to reduce their price. Many would have done just that - continually lowering their asking price until eventually their stocks were sold. This leads to fewer sellers in the price band above the resistance. Fewer sellers mean a more vigorous rise when/if the resistance level is broken. In addition, of course, there are naughty TA people who like to buy stocks that have just broken above an extended period of resistance. So, you have increased buying pressure and a smaller than usual number of sellers. A good recipe for a sharp rise in the share price. This chart is an excellent illustration of the classical TA phenomenon of an explosive breakout after prolonged resistance. Take a look at the CEN chart to see another clear example.

In the book "Technical Analysis of Financial Markets" the author, John Murphy, devoted many pages to the psychology of Support and Resistance. MvT, on the other hand, claims that "support and resistance are rubbish".

[k1w1]

Hi Phaedrus, is that what is going on with NZR which has jumped 10% today for no reason that I am aware of ?

[Phaedrus]

Yes, but the breakout was on 1/6/04.

[k1w1]

Thanks Phaedrus. Although your chart doesnt show it the SP went to 24.50 today with buyers at that figure and only a few sellers on the medium horizon around $26.00. Would you still keep 20% trailing stops on this bearing in mind that it is less liquid even than SCT. ?

[foodee]

Thanks Phaedrus for the revealing chart. Studying it closer it seems that this share has been spiking about this time of the year over the last three years that is pre announcement - may be more good news. Noted your ma suggestion.
Has been an excellent performer for me.
cheers

[Capitalist]

Welcome back Phaedrus. I found this very interesting...

When a stock has been encountering resistance over a period of time, a "depletion zone" is created just above the level of that resistance, where there is a paucity of sellers. This means that the longer any given resistance level is in effect, the more explosive any breakout will be (...) This chart is an excellent illustration of the classical TA phenomenon of an explosive breakout after prolonged resistance. Take a look at the CEN chart to see another clear example.

In the book "Technical Analysis of Financial Markets" the author, John Murphy, devoted many pages to the psychology of Support and Resistance. MvT, on the other hand, claims that "support and resistance are rubbish".

All rather Freudian...explosive breakouts after prolonged resistance. We all like it when that happens even Tempksy I'm sure...I must read that book.

PS I sold HRB late August, which was a good move I think.

[Phaedrus]

K1w1, I had better post the reply to your NZR chart query under its proper heading. See NZR thread.

[k1w1]

Cap I think Roger encountered prolonged resistance from Deb C. I think he was hoping for the "explosive breakout" after they left the Backbencher.

[k1w1]

Okay techies, its down 5% as people realise that our strong currency will hurt and there are no bonus shares. At what price do the stop losses kick in ?

[Phaedrus]

K1w1,
As per the chart above. "A Close below the ema would provide a good exit signal, as would a break of the trendline or a drop below the 20% trailing stop as plotted on the chart".
SCT remains a good stock that is still in an uptrend. Only short-term traders would be flicked out by price action such as todays drop. We Medium-term trend-following techies are made of sterner stuff than that! We also know that it is quite common for price action to drop after a breakout such as this. It is also common for resistance, once broken, to become support. That is what ought to happen here - SCT should find support at $3.40. A clear break below that would give a Sell signal.
SCT is a good stock with good fundamentals. We techies are counting on the fundies to provide a good solid floor of buying support at $3.40. You should see todays drop as a market over-reaction and as such, presenting a buying opportunity. If you guys fail to front up here, I will (sadly and with regret) begin unwinding my position.
K1w1, on the fundamentals alone, do you consider SCT to be worth buying at $3.40?