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CHART ANALYSIS


Gamestop Has A Daily Buy Signal Amid Bullish Weekly Backdrop

06/23/11 10:21:31 AM
by Donald W. Pendergast, Jr.

A daily based system buy signal is nice, but when it occurs in union with a bullish weekly chart breakout setup, serious traders will want to take note.

Security:   GME
Position:   N/A

Shares of Gamestop (GME) have been mired in a gigantic two-and-a-half year bottoming and/or consolidation pattern (based on weekly chart analysis), and with the stock now in ascending mode -- and possibly ready to finally break out of one of the last remaining resistance areas -- the appearance of a recent Rahul Mohindar oscillator (RMO) daily swing buy signal seems to imply that the stock may be finally ready to launch higher. Here's a closer look now.

FIGURE 1: GME, WEEKLY. Breakouts from large, multiyear patterns can offer traders some very unique opportunities.
Graphic provided by: MetaStock.
 
While the daily RMO swing buy signal is important to note, I want to focus on GME's weekly chart, because of its super-bullish implications. First off, note in Figure 1 just how close the stock is to being able to finally break free of the upper resistance barrier near $28.66 (the border between the green and pink shaded areas); a clean break above that price with a confirmed weekly close also above it will mean that the stock has a virtually unhindered pathway to challenge the April 2009 high of $32.82.

This fact could help give traders some extra confidence if they choose to go long at this juncture; trend-followers might want to initiate a fresh long position, relying on a 2 * average true range (ATR) 10 volatility-based trailing/initial stop to manage the position till final closeout. Less-aggressive traders who aren't as convinced that a sustained market rally is likely might want to run a simple three-bar trailing stop of the daily lows. Truly antsy traders might also want to use that previously mentioned resistance area at $28.66 to take partial profits (should they materialize), using either of the trailing-stop styles just mentioned.

Trend-followers generally benefit from a positive money flow profile in the stocks and futures contracts they trade, and in the case of GME, the 21-week Chaikin money flow (CMF)(21) indicator (bottom of chart) is in the extremely bullish category, offering an extra measure of technical confidence for GME bulls.

When analyzing your list of daily buy signals from your favorite system, always take a look at the price dynamics (especially key support/resistance levels) of the weekly chart as well. You may be surprised at what you discover.



Donald W. Pendergast, Jr.

Donald W. Pendergast is a financial markets consultant who offers specialized services to stock brokers and high net worth individuals who seek a better bottom line for their portfolios.

Title: Writer, market consultant
Company: Linear Trading Systems LLC
Jacksonville, FL 32217
Phone # for sales: 904-239-9564
E-mail address: lineartradingsys@gmail.com

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