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4 Ways to Buy Magna
10/10/2013 7:00 am EST
Popular with hedge funds, technician Greg Harmon of Dragonfly Capital serves up different approaches to trading this stock.
Magna International (MGA) has been trending higher since May of 2012. During this time the 20- and 50-day simple moving averages (SMA) have acted as support and been points where it has given you an opportunity to enter long. This puts the stock in a really unique situation right now. With the consolidation under the 85.20 level it offers a buying trigger on a break higher. The 20-day SMA is acting as support and would be a cause to buy for some as well. And then there is the 50-day SMA just below at 80.62. Three different triggers in a stock that is consolidating in the middle of a 17-month uptrend. Which one suits your style?
If you are a momentum investor, then perhaps the breakout over 85.20 is best for you. The target on the measured move higher would take it to 88.20 and then 90.50. A swing trader might find the support at the 20-day SMA attractive and put in a buy stop at 83.28 with a stop loss at the bottom of the channel. And a trend follower may see the hold at the 20-day SMA as a trigger with a stop under the 50-day SMA.
Still others with a longer view might look towards the weekly chart below and seek a pullback to the rising 20-week (about equal to the 100 day) SMA at 76.87. They could sell the October or November 75 puts to start a position. Which one looks right to you?
By Greg Harmon of Dragonfly Capital