Poised for Run Higher

02/15/2011 5:00 am EST


Today we explore a long idea for, Inc. (NTES), which looks poised to move significantly higher.

The chart of NTES is showing a complex continuation inverse head-and-shoulders pattern began forming in November 2009. The pattern triggered last week with many forms of confirmation present, including heavy volume.

A simultaneous breakout in the downtrend of comparative relative strength of NTES versus SPY also lends confidence to the trigger. The minimum expected price objective (upside trade target) is $59, as measured by the height of the pattern.

Chart one below displays the recent breakout of the downtrend in comparative relative strength of NTES versus SPY.

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Chart two below is a daily chart of NTES, highlighting the confirmed breakout of a complex continuation inverse head-and-shoulders pattern. A surge in volume accompanied the breakout in price, also highlighted, which helps confirm the trigger. One may accumulate at current levels and/or wait for a potential pullback, which would provide a lower-risk entry between $43-$43.50.    

Trade Target: $59

Protective Stops: For conservative traders, place a hard stop below the recent pivot low, which is $39.90. For aggressive traders, trigger on a confirmed move below the neckline, which is approximately $42.40.

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The major indices are trending higher with negative divergences present. Use tight trail stops for your current long positions and consider hedging by shorting the market and/or individual weak names.

By Zev Spiro

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