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# Let Us Look at Lucent

01/20/03 12:11:42 PM
by Koos van der Merwe

Lux means light in Latin, but things have not been bright for Lucent. How does it shine today?

Security:   LU
Position:   Hold

 When you look at the chart below, the first thing that strikes you are the three cup and handle formations. I have labeled them A, B and C. Then you notice the strong resistance line, E-F which has successfully acted as a barrier to a rising price three times. Then finally, you see an inverse head and shoulders formation, with E-F as the neckline. Surely the chart is telling us something profound? 1. There are two formations, the inverse head and shoulders formation and the cup with handle, suggesting a strong resistance at the same level. 2. Calculating the target using the inverse head and shoulders formation, I find that Lucent could rise to \$3.46, should it break above the neckline of \$1.98.3. Looking at the right shoulder of "C" and determining a target using a cup and handle formation, I calculate a target of \$2.73.4. Finally, the chart shows how Lucent has tested the main resistance line E-F three times. Testing it for the fourth time is usually difficult, as the line becomes more solid with each test, but when eventually broken, the result can be dramatic. 5. I would buy the share should it break above \$1.98. My risk reward ratio of 2.5:1 makes it a profitable buy. I calculate it as follows. My stop-loss would be 10% of 1.98, which comes out to 0.20. Then subtracting 0.20 from 1.98 gives me a 1.78 stop-loss. This means that my target should exceed \$0.50. My reward would be \$1.45 (\$3.46 - \$2.01) if the head and shoulders target is reached. If the cup and handle target is reached, my reward is \$0.75. In both cases my reward exceeds my risk by more than 2.5. Figure 1: Lucent a future star? Graphic provided by: AdvancedGET. I will now place Lucent on my watch list, and wait for a break above \$1.98 before buying. I will expect the share price to rise to \$2.73, (the cup and handle target), consolidate at this level, and then continue rising to take out the target at \$3.46.

Koos van der Merwe

Has been a technical analyst since 1969, and has worked as a futures and options trader with First Financial Futures in Johannesburg, South Africa.

 Address: 3256 West 24th Ave Vancouver, BC Phone # for sales: 6042634214 E-mail address: petroosp@gmail.com

 Comments or Questions? Article Usefulness 5 (most useful) 4 3 2 1 (least useful)

Date: 01/21/03Rank: 4Comment: