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BREAKOUTS


Upside Breakouts-A Good Time to Buy?

08/31/00 09:57:31 AM
by Jayanthi Gopalakrishnan

In any given day you are likely to find one stock that has gone up in price on higher than average volume. Is there any way of knowing whether this is a pump and dump or a genuine upside breakout that will be followed by continued upward price direction?

Security:   INSP
Position:   N/A

It is difficult to answer this question if you are merely analyzing price activity for one day. Day traders can take advantage of this type of price action but if you are a position trader or a long-term investor seeking value stocks you can protect your profits.

When you detect a breakout the first action should be to insert a 50-day moving average on the price chart. Wait for the following two conditions:
1. Prices to cross above the 50-day moving average on strong volume.
2. The 50-day moving average should start sloping up.

If these two conditions were met I would confidently enter a long position.


The last price bar on this chart shows signs of a possible positive price movement in Infospace, Inc. [INSP]. If prices break out above the 50-day moving average (shown in blue) on heavy volume and the moving average slopes upward I would confidently enter a long position.
Graphic provided by: Tradecast Securities, Inc..
 
The attached chart of Infospace, Inc. [INSP] is an example of a stock that had a price jump on above average volume. The 50-day moving average has been overlaid on the price chart. At present, prices are below this line and it is still sloping down indicating that a confirmed buy signal has not yet been triggered. However, it is a good stock to add to your watch list.



Jayanthi Gopalakrishnan


Title: Editor
Company: Technical Analysis of Stocks & Commodities
Address: 4757 California Ave SW
Seattle, WA 98116
Website: Traders.com
E-mail address: Jayanthi@traders.com

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