Jun

24

2004

Overhead Supply

Question:

When you buy a breakout such as you did with EASI, what are your concerns about overhead supply? I noticed this stock will be hitting the December high of 61.93 fairly soon. How will you handle this?

My Response:

Overhead supply is of some concern, but not much in this case.  The December high is the all time high, which may offer some resistance in the form of another handle like formation (pull back on lighter volume).  Much more important of a resistance level is 60.  Multiples of 5 and 10 are often sources of resistance for higher priced stocks.  For example, investors rarely say sell my position when it hits 61.93.  They will set a sell or tell the broker to sell at 60.  This is exactly what we are seeing now.  Notice I chose a breakout point for this stock quite low in the right side?  Sometimes it’s a good idea to purchase lower in the right side, because your purchase point is much closer to major support which allows you to stay in the stock longer w/out getting stopped out of the position.  How do you know which stocks to purchase lower in the in the right side?  Depends on volume, price action and instinct (based on viewing many charts)… this is where experience comes into play