PRINT THIS ARTICLE
HEAD & SHOULDERS
With Motorola, Sloppy Topping Presents Trading Opportunity11/27/07 07:53:58 AM
by Mike Carr, CMT
In a down market, short trades offer profits to offset the losing long trades.
|Motorola (MOT) is a market leader in wireless communications. Two of their best sellers are cell phones and radios for emergency and military personnel. These markets have long-term growth potential, and analysts are increasing earnings estimates. More than a dozen times in the past month, analysts have revised their earnings estimates for next year. All the revisions have been upward.|
|But the stock is trading as if it hasn't read the company's annual report or any of the bullish analysts' reports. MOT recently broke short-term support near $16 (Figure 1) and may have a long way to go before it finds a bottom. The short-term pattern might be thought of as a sloppy head & shoulders with a poorly defined right shoulder. Using that view, we get a short-term price target of $13, which is three points below the distance between the top of the pattern and the recently broken neckline.|
|FIGURE 1: MOTOROLA, DAILY. MOT broke short-term support in the last week.|
|Graphic provided by: www.PatternScans.com.|
|The long-term chart is even more bearish (Figure 2). MOT sits at a critical support level, and a close below $15.70 would signal significant weakness. If MOT breaks below that price level, it would represent a great shorting opportunity for aggressive traders. On the monthly chart, support is near $7.50, prices last seen in 2003. A close above $17 would indicate renewed strength in Motorola, and providing a good location to place stops. Offering a potential reward/risk ratio of about 7:1, this is a trade worth considering.|
|FIGURE 2: MOTOROLA, WEEKLY. Long-term support is at the 2003 price levels once more.|
|Graphic provided by: www.GenesisFT.com.|
|Traders who prefer long-only positions should consider buying put options on Motorola. An in-the-money put offers an alternative to the short position. A deep out-of-the-money put offers leverage, with limited risk.|
Mike Carr, CMT
Mike Carr, CMT, is a member of the Market Technicians Association, and editor of the MTA's newsletter, Technically Speaking. He is also the author of "Smarter Investing in Any Economy: The Definitive Guide to Relative Strength Investing," and "Conquering the Divide: How to Use Economic Indicators to Catch Stock Market Trends."
here for more information about our publications!
PRINT THIS ARTICLE
Date: 11/27/07Rank: 4Comment: