Breakout From a Base

Trading Strategy: Breakout from a base. PALM is consolidating at the top of its trading range over the last five trading sessions and may be ready to break out above this area. What we like about this pattern is the fact that PALM moved to the top of the range in one bar or trading session verses 4 to 5 as it did in the past. This shows strength and a higher probability of continuation.

chart courtesy of

Tip: Several bar rallies into resistance verse a single bar has a higher probability of experiencing profit taking. When traders have been buying over several days they often take profits more aggressively once that issue nears its prior highs. A single bar that moves into that area, as with the pattern in PALM is ignites momentum typically continuing in the direction of the wide range bar. PALM's ability to stay in the upper 50% of that wide range bar increases those odds.

The Play: We will look to buy PALM once it trades above 18.80, which was last week's high. Once entered, our stop will be placed .25 cents below the low made on Friday at 17.08.

Objective: Look for a move back toward the stock's $24 - $25 area. This is the base area that PALM gapped down from July 2002. If you refer to a weekly chart you will see this clearly, as well as the extensive base that has been built since the August low.

Play Review:

PALM fell hard three days after entering with the overall market but the stop was not hit at that time. Next day's negative open caused that to happen. One option was to only exit half the position as PALM was nearing an area of support and could bounce from there, and the weekly chart still looked attractive, but in the end support did not held, and price proceeded down.