Trading Tips with John Bougearel

By John BougearelThursday, August 20, 2007 (Structural Logic) — Technical analysis, done well, requires a thorough knowledge of key market concepts, the chart structures and memory anchors one must know in order to identify critical areas of support and resistance targets for any market. 

These concepts, memory anchors and market structures by no means exhaust the topic of how to identify key areas of support and resistance. Rather these are simply guides or signposts that I use every day in conjunction with several other market considerations. Those other market considerations are outside the scope of this short report. This report, using EBAY as an example, is simply an introduction to some of the essential signposts I use as my daily guides.

This following overview on EBAY highlights briefly 50% advances, Half Off Sales, Half Mast and Three Quarters Mast concepts, Return Moves and Round Tripping to Year Closes and Year Lows, Anniversary Kisses, Bear Gap Down Highs and Bull Gap Low Failures. download Examined Life Got all that? Good.

The compressed chart (Dec 2004-Aug 2007) shows over 2.5 years of daily data on one screen. The bullet points below will highlight and underscore the validity of the signposts ability to act as an area of critical support or resistance. When more than one signpost is found in an area of potential support or resistance, that area becomes known as a support cluster or resistance cluster. The more signposts of support or resistance there are in a tight area, the greater the probability of encountering a countertrend reaction over the near to medium term.

Past Chart Points of Significant Support and Resistance for EBAY

1. Going back to the 2005 Yr low, we should remember the low it set near $31 just shy of the Half Off Sale Target (29.5) from its 2004 Yr high at $59.

2. EBAY then rallied $17, making a slightly greater than 50% advance off the $31 low to $48 to set the year high for 2006. The Bear Gap Down high at $44 acted as huge resistance, as should have been expected on the initial challenge (the stock sank $8-9 or almost 20% in little over a month.

3. After Cresting in 2006 near $48, prices retreated to test the Bull Gap Low

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The Messenger: The Story of Joan of Arc movies near $36. The initial test, as would be expected, acted as support. However, it failed to act as support in April 2006 during the Q2 06 earnings season (most likely this failure could have resulted from an earnings related disappointment). That bull gap failure led to yet another half off sale from $48 to $23 - which set the year low in 2006.

4. After being in a bear market for over 18 months, and losing more than 60% of its value, the stock rallied half way back to its half mast

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target to the 2004 year high and to the bull gap failure lows of 2005-2006 where it has recently encountered significant resistance around $36-$37 in mid-August 2007.
Where Now Brown Cow?

The overall trend from 2004 for EBAY remains bearish from a technical perspective. From a fundamental perspective, however, investors may have discounted the worst case scenarios in 2006. So, the outlook may be improving for EBAY over the next 12-18 months, but for our purposes in this overview, we couldn’t care one iota. We only care about where the next critical areas of support can be found over the near to medium term (6-18 months).


Future Chart Points of Significant Support and Resistance premarin

1. Over the medium term, future Resistance above $37 will be found at the 2006 yr high and the three quarters mast target around $48

2. Over the near term, there is a huge support cluster between $28.70-$30.25. The 2005 yr low at $30.75 is just above the bull gap low support at $30.25. The bull gap low support at 30.25 will lend support to the 2006 year close at $30 and the Half Mast

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target to the 2006 Yr low at $29 and the 2007 Yr low at 28.70. In short, a return move to the 2006 yr close at $30 will find support at the bull gap low and Half Mast Support

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Targets. All of which should be expected to keep EBAY above its 2007 Yr lows at 28.70. A test of $29-$30 would essential equate to round tripping on the year, which we see happen frequently in the fall or second half of a year. However, if all these supports above the yr low fail to keep EBAY above the Yr low at $28.70 over the near term then prices should decline further over the medium term.

3. The extended support target is the 78% retracement, which I call the Three Quarters Mast target

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at $25.5. There is a swing low in Sept 2006 around $25.5 that supported sharply higher prices for the remainder of 2006. That swing low makes a support cluster. A one year Anniversary Kiss of $25.5 in Sept 2007 might also lead to a sharp rebound in the remainder of 2007.

John Bougearel
Event-Driven Investment Research
Director of Futures and Equity Research at Structural Logic

Stock Market Analysis Bull Gap Low Support Half Mast Target Support Bear Gap Down Highs Stock Market Support Stock Market Resistance Turbo Tagger

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