November 2nd, 2005

I gave Allied Capital (AC) as an example of

I gave Allied Capital (AC) as an example of why one must look at charts encompassing different time horizons when interpreting a stock’s supply and demand points in my post of October 18. On October 23, I followed up with a comment saying:

Alliance Capital (AC) survived a scandal earlier in the year and has since built a consolidation channel with the top at around 48 and the bottom at 43.5….(charts)….The upward slopping trendline is one that AC has been true to ever since it first started trading in 1988. A move back down to low-40’s from the current 47.75 awaiting the upward slopping trendline to catch up sounds reasonable but a move through the top of the channel to attack the previous all-time high of 54 also seems feasible.

AC, since then has been en fuego, to use a “Cramerism”. Here is a current chart:

I couldn’t have nailed that one more on the head. AC was on my breakouts watchlist so when it crossed with volume the resistance line at 48, my order was triggered. It has since moved immediately to 54.29. As I said two weeks ago, that is it’s all-time high and therefore should meet some resistance. If not, there’s nothing preventing it from moving considerably higher.

AC is a perfect example of how portfolio risk can be minimized when resistance levels are identified and stocks are bought on breakthroughs (i.e., moves with conviction) through those levels.

Another example is Monster.com (MNST):

Over the past couple of days, with the market moving higher, other stocks on my watchlist have triggered buys, including: DEL, MXRE, CLB, BPFH, NILE, DIET and ENS. This approach is not foolproof but it has the advantage of:

  1. taking some of the emotion out of timing and stock selection,
  2. reducing some of the risk by increasing probability of success
  3. brings portfolio management in synch with overall market direction

I’ll feature more stocks on the breakthrough watchlist and their resistance levels in future postings.

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