A Stock That Looks Great Both Technically and Fundamentally

The prevailing winds are still pushing this market higher it seems, and I am not looking for any short selling set-ups right now.

What I am looking for are things that have been moving up to challenge key resistance areas. Many stocks seem to have no problem moving higher through resistance these days, so that gives me confidence that more of the same can continue.

What I really want to find right now are names that have not expended too much energy getting to their respective resistance levels. I am more interested in a stock that is compressing or consolidating near resistance versus a stock that has expended a lot of energy moving up to resistance. Moreover, (my second favorite Bernanke expression) I would like to see this type of set-up on a weekly chart as well as a daily chart.

EMC Corp. (EMC) has my attention. Not only do the daily and weekly charts look good, I’m thinking the world still needs data storage. I’m not a tech nerd; I just read charts. But I do know that the world continues to come online to share pictures and media.

With a market cap of 44.6 billion according to Yahoo! Finance, EMC will maintain its share of data storage worldwide. Of course, a falling US dollar and talk of extending the Bush tax cuts doesn’t hurt either.

Technicals

On this weekly chart, courtesy of FreeStockCharts.com, you can see that ECM has already tested the 50-day moving average (in blue) and the 20-day moving average (in red). My favorite ten-day moving average is confirming the bid that is needed to push this stock back through highs at $21.83.

Click to Enlarge

Notice that the first move off the 50-day moving average set the high of $21.83 but used up a lot of energy in doing so. The action of the last few weeks is the consolidation that I like to see before another attempt is made at resistance. All the backing and filling above key moving averages gives me confidence that the $21.83 level will be taken out soon.

Getting in

I’ll be looking for any entry on a retest of the 10-day moving average just under 21.00. If this happens I will most likely buy a half-size position to monitor the price action. If this doesn’t happen, then I will wait for a break above 21.83 and use a full position, but with a tighter stop.

Stop and Target Levels

The first level of support I would want to see hold is the $20.00 level. Not only is this a psychological number to defend, it has prior resistance from early 2010. Like they say, prior resistance should act as future support. The more conservative stop to use if EMC breaks out would be a close below the trailing ten-day moving average. The upside for this move is the 2007 high around $25.00.