NT

[David Randolph]

Nortel is one of those falling angels from the bubble, with the spicy ingredient of an accounting scandal too.

The company released earnings yesterday, and they were a positive surprise on the revenue side and earnings
were as expected. They guided higher for the full year too.

The market responded to news with a bullish breakout with volume above average:



Of course, being a giant I don't expect this stock to move really fast, but I sense, from fundamentals and technicals, we got a safe bet here.

I'll buy NT at today's open for the 3 Stocks on Fire Portfolio, as usual, 6.66% of total capital.

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[la-onda]

NT: Desjardins Keeps @ Buy; Ups Tgt to $4.4 vs $4
Tuesday , August 09, 2005 10:04 ET

Issuer: Nortel Networks Corporation (NYSE: NT)

Analyst Firm:  Desjardins Financial Security

Ratings Action: REITERATION

Current Rating: Buy

Target Price Action: INCREASE
Target Price: $4.40 (+10.00% from $4.00)

This rating information was reported by Dow Jones Newswire.

[David Randolph]

Cool price target la-onda, but let me guess, that's a 12 month target, right?

Well, I don't keep stocks that long and my target is the technical target of the breakout of the symmetrical triangle formation, which is $3.37.

This will be, if right, a 12% profit on a big cap. I'll take that anyday.

Today we've had another white candle with volume above average (though not so strong as the volume of the breakout day, which is normal).

So, my plan is to sell at $3.37 for a profit. If the stock closes below $2.91 before the target is reached I'll admit I was wrong and take a small loss.

[nikao]

why 2,91?
Don't you allow the stock to come back and test the breakout by testing the old resistance?
(it's still a valid breakout when it comes back, test the old resistance and bounces back right?)

[David Randolph]

why 2,91?
Don't you allow the stock to come back and test the breakout by testing the old resistance?
(it's still a valid breakout when it comes back, test the old resistance and bounces back right?)

$2.91 because that was the prior high as you can see on the chart below. I wouldn't like to see NT close below that level before hitting the target at $3.37.

«Don't you allow the stock to come back and test the breakout by testing the old resistance?»

No (only intraday), let me explain why. The descending trendline shows lower and lower support as time passes. For today that trendline will stand at $2.83, so my risk would be 5.6%, but this risk would grow a bit everyday.

I like to have a more attractive risk/reward ratio. If the potential reward is just 12% I want risk to be just about 3%, or a quarter of the potential reward.

«(it's still a valid breakout when it comes back, test the old resistance and bounces back right?)»

Yes it is. In this case it would be possible for NT to come down and touch $2.83 intraday (the descending trendline) and still close above the $2.91 horizontal support.

Thanks for your interest nikao 

[la-onda]

updated chart, still holding:

[basanlas]

David,

Thanks for your tips. Unbelievably I set my sell at 3.37 and sold it today at the high of the day,a first for me I think,plus hit my buy at 9.80 on VPHM. Actually feel like I timed some stocks right for a change!

[David Randolph]

David,

Thanks for your tips. Unbelievably I set my sell at 3.37 and sold it today at the high of the day,a first for me I think,plus hit my buy at 9.80 on VPHM. Actually feel like I timed some stocks right for a change!

Well, that's what we're working for  Thanks for your kind words basanlas, I'm glad you're making good trades.

Well, I wasn't so fortunate and didn't sell at the high of the day, I wasn't looking and didn't left an order to sell at the target. But the target was reached, so the trading setup is no longer valid, for me to keep the stock I would need to setup another trading plan based on another technical structure.

But I'm not going to do that. I'll take my 11% profit and move on, although I believe this stock will continue to move higher over the medium term. I would like to keep my win/loss ratio at least 50%, and at this time I have 42 wins and 48 losses since 3 Stocks on Fire started on the 28th of April 2005.

I'll take my profit on NT at today's open and increase the number of winning trades to 43.