NetEase.com Poised for Run Higher

02/15/2011 5:00 am EST

Focus: STOCKS

Today we explore a long idea for NetEase.com, 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.

chart
Click to Enlarge

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.

chart
Click to Enlarge

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

If you are interested in receiving Zev's free market letter, e-mail zevspiro@oripsllc.com with subject line “Moneyshow.”

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