Last week I focused on Estee Lauder stock in an article titled A Little Patience Pays Off. I stated “EL is now up 3% from the breakout level, but more importantly is only 1.4% away from setting a new all-time high. The weekly chart suggests another strong step-up in EL would not be unusual.“
As with any case were a stock is approaching a previous high, you must look for clues to whether the stock has enough momentum to conquer the previous high and continue setting new highs, or if buyers are stepping back and taking profits.
Usually, when an analyst points out a previous high and suggests a stock's near term price target will be that previous high, they mean it is likely to get pretty close. If you are a short-term trader, and in a stock that is rising towards a previous high or previous resistance, you may want to take profits as the stock gets CLOSE to the previous high and not wait for the exact price. The best technical charting advice I ever heard, and I don't remember the source, is that trendlines should be drawn with crayons, not pencils, meaning this is not an exact science.
But on Friday, EL came within one penny of its previous all-time high and then turned down. Maybe this is an exact science.
Normally, Friday's rejection of setting a new high, accompanied by high volume, should be a warning. I will not place too much emphasis on Friday's action because it was a ‘quad-witching' day, meaning the expiration of September options. On more popular stocks, this can account for a high turnover in the stock and not necessarily indicate any change in attitude by traders.
The key is to watch the next few trading days. If EL rebounds and easily closes at a new high on increasing volume, it is likely to continue on for a ways – there will be no previous resistance levels to deal with. Then it becomes self-feeding. New highs can capture the attention of institutional traders not already in the stock.
This stock has a strong seasonal track record, good ratings, and the number of funds holding the stock has increased by 15% over the past year. It has the potential, it just needs to prove it has the backing for further gains.
Today's Seasonal Forecaster newsletter covers a similar stock with strong growth prospects and clear evidence of big money taking an interest in the company – very big money.
Of course, there's much more you need to know and many more stocks you can capitalize upon each and every day. To find out more, type in www.markettamer.com/seasonal-forecaster
Copyright (C) 2013 Stock & Options Training LLC
Unless indicated otherwise, at the time of this writing, the author has no positions in any of the above-mentioned securities.
Gregg Harris is the Chief Technical Strategist at MarketTamer.com with extensive experience in the financial sector.
Gregg started out as an Engineer and brings a rigorous thinking to his financial research. Gregg's passion for finance resulted in the creation of a real-time quote system and his work has been featured nationally in publications, such as the Investment Guide magazine.
As an avid researcher, Gregg concentrates on leveraging what institutional and big money players are doing to move the market and create seasonal trend patterns. Using custom research tools, Gregg identifies stocks that are optimal for stock and options traders to exploit these trends and find the tailwinds that can propel stocks to levels that are hidden to the average trader.
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