AOL – Market is telling you something, do you HEAR?
February 1, 2012
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Blast out of the past, AOL just transited through EBV-2 ($17.43) today after reporting earnings. Remember when any equity transits upwards, through the EBV lines the market is telling you something positive is happening. AOL transited, EBV-3 on three separate occasions since last August, which is very bullish for the name and subsequent price action. (See the below “Trading Tip” for explanation)
A trader/investor should always keep an eye on transits up through EBV-3. We call this “Coming out of the blue”. Why? Subsequent to an upward transit of EBV-3, stocks tend to have powerful moves, price wise, that can take a stock from EBV-3 to at least EBV, or EBV+2. Sometimes investors, if patient, can ride their winners all the way to EBV+5.
We look for “break out/pull backs”, for higher probability trades. This occurs when a stock transits above EBV-3, then pulls back under, then breaks above again over a period of weeks/months. To us this means the market is undecided in terms of the price action which zone the stock belongs. When the market does decide, could be along side of news and/or corporate action, the price action is very positive.
Obviously, if the stock transits down through EBV-3, all bets are off!