This Week's Stock of the Week

Tellabs Inc. (TLAB)
Support at the Lower Line (Kiss) Below the Breakout
TLAB broke out above it top float channel line in September (2006) but that line offered strong resistance and the price moved lower until a little over a week ago when it kissed the lower float channel line, found support and began bouncing higher.  Tellabs is a strong likelihood of moving higher in the coming weeks.  KBH Homes (below) made the same type of float turnover action in early September. 

This Week's Chart Lesson

KBH Homes (KBH)
Support at the Lower Line (Kiss) Below the Breakout
In early August (2006), KBH broke above its top float channel line.  It then corrected down to its lower float channel line where it found support and began moving higher.  Since kissing its lower float channel line it's up 29% (see chart below).  The underlying principle that is shown in this chart is what I'm now calling The Opposition Principle.  While the initial breakout indicates that the stock is making a bottom, the buy signal doesn't occur until a "breakdown" at the lower float line occurs.  If the lower line gives support as it did in KBH, then the stock has a very good chance of moving higher.

Will TLAB continue to move up like KBH did?  Only time will tell.

See both charts below and read about our services below!

When a stock's price has been in a long decline and then rises far enough to penetrate its upper float channel line, there are three possibilities ahead.  1) The most likely possibility is that the upper float channel line will act as resistance and the price will immediately head lower.  2) The second possibility is that as the price moves lower it will find support at either its 25%, 50% or the lowest (100%) float channel line.  If this happens there is a strong probability that the stock will put in a bottom and the long term trend will change from down to up.  3) The third possibility is that the upper float line has lost all resistance capability and the price will easily continue to move higher.  This is the least likely scenario.  Thinking that a penetration of the upper float line is a buy signal is a mistake and will easily lead to losses in your portfolio.

Always remember, you never ever truly know what a stock will do tomorrow.  This is because stock movement is not a mechanical process.  Stocks move based on the decisions of human beings and predicting human decisions is never certain.  If a large number of the people owning the stock mentioned above were to decide tomorrow that they wanted to sell then the stock could easily sell off.  If a large number of people decide to buy then this stock could easily blast higher.  It all depends on the decisions of people.

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