By: Zev Spiro
To reiterate, the major indices are trending higher with negative divergences present. Use tight trail stops for current long positions and consider hedging by shorting the market and/or individual weak names. Below is a long idea in NetEase.com, Inc. (NTES) that looks poised to move significantly higher.
NTES: A complex continuation inverse head and shoulders pattern began forming in November 2009. The pattern triggered last week with all forms of confirmation* present: percentage, time and heavy volume. A simultaneous breakout in the downtrend of comparative relative strength of NTES versus SPY, also lends confidence to the trigger. Minimum expected price objective is 59 dollars, measured by the height of the pattern.
Chart 1: Displays the recent breakout of the downtrend in comparative relative strength, of NTES versus SPY.
Chart 2: Below is a daily chart of NTES highlighting the confirmed breakout of a complex continuation inverse head and shoulders pattern. A surge in volume accompanied the breakout in price, also highlighted, which helps confirm the trigger. One may accumulate at current levels and/or wait for a potential pullback, which would provide a lower risk entry, between $43-$43.50. Target: $59, Protective Stops: conservative: hard stop below the recent pivot low, which is $39.90, aggressive: trigger on a confirmed move below the neckline, which is approximately $42.40.
UPDATE:
PRGO: (Market Letter 1/25/11) – Perrico Company (PRGO) was consolidating the breakout in a pennant pattern for the past three weeks. It broke out to the upside on Friday so protective stops should now be trailed higher, triggering on a confirmed move below $70.94.
*I often mention Confirmation needing to be present for a valid breakout, or stop, to trigger. The following link is to an article titled “For Traders Only: A Guide to Confirmation” that I wrote for Minyanville Media, Inc, which may be used as a guide:
http://www.minyanville.com/businessmarkets/articles/stock-market-confirmation-percentage-confirmation-time/1/14/2011/id/32204
If you are interested in receiving Zev Spiro’s market letter, please email zevspiro@oripsllc.com subject “T3”
*DISCLOSURE: No position (subject to change)
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