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TRADING SYSTEMS


Another Rise Due For KLAC-Tencor?

12/06/11 08:27:34 AM
by Donald W. Pendergast, Jr.

With the recent bullish reversal in the broad markets still holding strong, it's time to look at big-cap names with high relative strength.

Security:   KLAC
Position:   Buy

Scanning the Standard & Poor's 500 list of component stocks with MetaStock's RMO "swing trade buy arrow" exploration yielded a great many stocks now setting up for potential moves higher. And one with an outstanding overall mix of technically bullish factors is the subject of this article, KLAC-Tencor (KLAC). Here's a look at the daily Rahul Mohindar oscillator (RMO) swing buy setup now appearing on KLAC's daily chart (Figure 1).

FIGURE 1: KLAC, DAILY. With the new RMO swing buy signal occurring just shy of the previous swing high of $48.75, it's probably a wise strategy to prepare for a surge by placing buy-stop orders (market or limit) that ensure you're actually buying into continued strength rather than by getting long on a pullback and then hoping for a breakout to bail you out later.
Graphic provided by: MetaStock.
Graphic provided by: RMO system indicators from MetaStock 11.
 
As far as basic chart analysis goes, this one is relatively easy to interpret:

1. After enjoying steadily uptrending move, KLAC traders decided that a proportional pullback was required during the second half of November 2011.

2. The pullback was apparently mild enough (in terms of depth and duration) to attract a fresh influx of new buyers; these buyers have been enthusiastic enough to push the stock to within spittin' distance of the October 14-15, 2011, high of $48.75.

So that's the basic trading 101 analysis of the price trend as it now stands. What is most exciting for the bulls is the appearance of a new RMO swing buy signal and the fact that the setup bar's high (see the green oval on chart) is only a few pennies shy of staging a potentially powerful bullish breakout. Add to this the very powerful long-term Chaikin money flow histogram [CMF][100] and the fact that KLAC also features superior 13-week comparative relative strength to the .SPX and you definitely have all the right ingredients to do some serious cooking in the stock market's kitchen.

How the final dish turns out, however, is definitely in the hands of traders and the mutual funds that hold such large positions in this high-tech giant's shares. And for that reason, you need to always engage a new trade not only on the basis of its profit potential but also on its ability to cause damage to your portfolio, should things go awry.

Risking no more than 2% of your account equity is one great way to limit the amount of harm that a bad stock trade can cause, allowing you to regroup and trade again another day. When you start risking 4%, 5%, or even 10% of your equity on trades that are supposedly sure things, well, that's when you can be pretty sure that Mr. Market is going to beat you upside your head and teach you a lesson or two.

Play it safe and always limit your risk, no matter how good a trade setup looks, and you'll be very glad you did so.



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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