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Charts Don't Lie, People Do! I made my first investment in 1987 while I was still in graduate school. I bought a few hundred shares of Crazy Eddie (CRZY) and within a months or so the the stock market crashed. I got out with a big loss and later Crazy Eddie went belly-up in 1989. What I have... More
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  • Is Level 3 Finally A Long Term Buy?

    Is level 3 finally a long term buy?

    The stock price of Level 3 Communications (NYSE:LVLT) has lost over 99% of its value since 1999. As one of the most hated stocks on the street, it has disappointed so many investors over the years and even the most stubborn longs are so frustrated by it that they have pretty much written off the stock by now.

    However, recently the company has a change of leadership and is also undergoing a major transformation in its business focus. The lack of interest by the general public has reflected in its stock price as illustrated in the chart below. The stock has been trapped in a trading range between $19 and $25 for almost 2 years. One of my favorite criteria for a long term buy is to identify a beaten down stock that is hated and forgotten by the general public. It must have bottomed and formed a long trading range base and is about to breakout. LVLT appears to be such a candidate and requires further study.

    (click to enlarge)

    1. LVLT has bottomed @ $8.55 in late 2008 and early 2009 and has since formed multiple higher highs and higher lows.
    2. The stock has since traded in a well-defined channel. It closed yesterday @ $21.80 and is sitting just above the lower channel line.
    3. The stock has been in a 2 year-long trading range market between $19 and $25 with a good support @ $19. In general the longer the sideways action, the resulted breakout move tends to be stronger and longer.
    4. The volume (not shown) during the trading range is high comparing with the period from 2009 to mid 2010. This is an indication that smart money is actually accumulating LVLT during this period.
    5. The most recent upward movement during early May had a steeper angle hinting the direction of the breakout is up and the breakout is likely sustainable.
    6. The following downward movement was weaker since both Rapid RSI and RSS were unable to break below the 50 line.
    7. The latest trading channel has been broken which has triggered a buy signal.

    Trading plan:

    One of the strategies Stanly Knoll used to anticipate a trading range breakout was to buy at the support and sell ½ at the resistance. Repeat this until it finally breaks out the range so to accumulate a good size position. What I will do for this trade is to get 2/3 my intended size first near the support (I have already got 1/3 now) and will put a tight stop for half of the position based on 4 hour or 1 hour chart once it trades near $25 resistance level using a 4 hour/ 1 hour chart. If the stop is triggered, I will try to repurchase the lost shares near support again. If LVLT break the $25 resistance I will buy the remaining 1/3 once the breakout is confirmed. Target is the upper trading channel somewhere near $60. Stop just under $19.

    Update (02/09/14)

    So far so good and LVLT has performed as expected both technically and fundamentally. Here is an updated weekly chart with levels marked as important resistances LVLT will have to overcome. Good luck!

    (click to enlarge)

    Disclosure: I am long LVLT.

    Additional disclosure: This is not a recommendation for anyone to purchase LVLT.

    Jul 16 5:22 AM | Link | Comment!
  • Technical Analysis Of ZNGA: A Volume Study

    Trading style: Long/intermediate term trend following system

    Chart used: Weekly

    All time high: 15.91

    All time low 2.09

    Bullish Patterns:

    1. Rounded bottom with low 2.09 with a bullish divergence for momentum indicators suggesting ZNGA has bottomed (not shown).
    2. Cup & handle formation suggesting a target of 6
    3. Point and figure chart turned bullish on March with a target of 6.25(not shown)
    4. Major Fibonacci retracement levels are (targets): 7.37(38.2%), 9.00(50%) and 10.93 (61.2%)

    Based on the above projections, the 1st target of $6 is very reasonable and is likely to happen if the cup & handle pattern plays out. I will use this target to project risk/reward ratio (R ratio). The $9 target is the 50% retracement of the bearish trend and even if the next move were a bear market rally it has the potential to reached this target.

    Volume Analysis:

    1. The steep decline from the all time high (15.91) to $2.66 (phase 1) was accompanied by increased volume.
    2. After a brief pause, the remaining sellers were unable to push the price down below the important psychological support of $ 2.0and the decline were mainly on low volume except the two capitulation days marked by the arrows (phase 2). These are days when the last few remaining bulls finally bailed out.
    3. First sign of buyers have returned and started accumulation on good volume (phase 3)
    4. More buyers have jumped in and the bull volume expanded significantly (phase 4) indicating the bulls are in control now. ZNGA made a higher high!
    5. The shallow decline made a lower low with very light volume on down days. There were three up days during this correction with heavy up volume confirming that buyers are indeed outnumbered seller with a ratio of 3:1. The fact that bears could not breakthrough the $3 psychological barrier is also very encouraging. If this $3 support holds it will be a higher low for ZNGA.

    (click to enlarge)

    Buy signal:

    A weekly buy signal flashed last week when ZNGA closed above 3.37. If this Friday ZNGA can close above 3.37 or even better above 3.49 the buy signal will be confirmed.

    Risk/reward:

    For a potential gain of 6-3.45 (yesterday's close) =2.55 with a$0.50 risk (stop at 2.95), the R ration will be:

    R = 2.55/0.5 = 5.1 which is greater than 3. I LOVE IT!

    This is why I am long ZNGA and plan to add more if the buy signal is confirmed this Friday.

    Disclosure: I am long ZNGA.

    May 24 12:33 AM | Link | 3 Comments
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