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Time To Take Profits In Magna Entertainment

11/18/02 11:36:15 AM
by Gary Grosschadl

Two key divergences and a 62 percent retracement level say it's time to cash in or at least use a trailing stop-loss to lock in profits.

Security:   MIE.A.TO
Position:   Sell

This spin off from the giant Magna International (auto parts) trades on the Toronto TSX exchange. It has had an impressive ride up from its good double bottom signal (note the lower volume on second bottom which correctly signifies diminished bearish selling). But now warning signs are flashing.

Two important divergences have shown up. Price has been rising on lower volume which signifies that bullish buying power is quickly drying up. In other words, when no more hopeful buyers step up to the plate, the stock has nowhere to go but down. Adding credence to this, the money flow indicator is showing the same decline in buyers. This latest rise is not being supported with fresh new money.

Graphic provided by:
More strong hints that the party is quickly coming to an end are the following:

1. The 62% retracement level is often a reversal point.

2. ADX is now in overheated territory hinting at reversal.

3. Interim daily candle may close poorly with a shooting star or doji-like warning (which needs next day confirmation).

Use a trailing stop-loss to lock in profits. I suggest a move below the low of today is a good one, and keep raising it should it run a bit further. Aggressive short-term traders may even target a short sell for a possible move down to challenge the $10 support or 200-period EMA at 9.60, but not without risk.

Gary Grosschadl

Independent Canadian equities trader and technical analyst based in Peterborough
Ontario, Canada.

E-mail address:

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