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CNET Breaks Out To New 52-Week Highs

02/09/04 09:22:59 AM
by Ashwani Gujral

Stocks breaking out of consolidation or continuation patterns are always the surest trades. In this example, CNET breaks out of a flag pattern on very heavy volume to hit new 52-week highs.

Security:   CNET
Position:   Buy

When a trader uses technical analysis to make a profit, the color of the money remains the same no matter what indicator or pattern is used. Bull and bear flag patterns frequently occur in strong ongoing trends in an index or individual stock. These are pauses in a trend that help traders enter in a low risk manner. A flag generally occurs in the middle of a move and thus leads to a move similar in size to the one preceding it. Traders should watch for these continuation patterns and look to trade them rather than the more complex consolidation moves, as often as possible. Now, look at CNET's daily chart below.

Figure 1: Daily chart of CNET.
Graphic provided by:
On CNET's daily chart the price forms a flag pattern in the ongoing upmove and then breaks out on very heavy volume, making new 52-week highs and crossing a significant upward pivot in the process. New 52-week highs should be respected and a heavy volume breakout is evidence of a large demand for that stock.

At the same time, the ADX had declined to around 30, indicating consolidation, and is now starting to move up again. The stochastics (7,10) indicator is oversold and the fast line is about to cross over the slow line, which would give another buy signal. The evidence so far is sufficient to establish a long position on the stock. The stop-loss can be kept at the lower end of the flag, around $8.

Figure 2: Weekly chart of CNET.

On the weekly chart, CNET had bottomed out earlier, forming a large ascending triangle, then rallied and was consolidating for a long time before this breakout. The ADX, which was declining throughout the consolidation, has now started rising over 20, indicating a trend. As consolidation generally occurs in the middle of moves, it would be safe to assume a target of $15 in the medium-term.

Ashwani Gujral

He is founder of AGIP Securities Pvt. Ltd. which offers money management services, live chat rooms (during market hours) and independent technical analysis consultancy. The company has a big media presence from the likes of CNBC, NDTV Profit, and ZEE Business.

Title: Chief mkt strategist
Company: AGIP Securities
Phone # for sales: 9871066337
E-mail address:

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Date: 02/10/04Rank: 5Comment: 

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