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Lucent Technologies Chart - supply/demand $2 scale.

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We were hoping to show traders a $1 box scale of LU, but we couldn't fit the chart on the page. The above chart serves the purpose and gives traders and investors a good idea of how institutions view stocks. We've placed a horizontal level of support just above the $50 level and the trade at $50 signaled a "spread triple bottom sell signal" that was a fairly alarming signal that something wasn't going right and buyers that had been supporting the stock near $51 were being overtaken by sellers. Professor Earl Davis of Purdue University did a study on stocks that have given such signals and found that in a bear market, this type of chart pattern was profitable 86.5% of the time, for an average gain of 24.9% in 4.6 months. Well, LU has outdone that statistic to the downside, so what happens next? On our $1 scale, we thought we'd go back and calculate a bearish price objective and have come up with a long-term bearish price objective of $12. This doesn't mean the stock can't go lower than $12, and it doesn't mean that the stock will ever achieve that level. What it does tell us, is that when the stock broke the $50 level, institutions probably made a call to their trading desks and said, "get rid of it now." Remember that LU is only one stock in perhaps 30 to 200 that institutions may have owned and many stocks didn't have the bearish type of implications and probabilities facing them that LU did. We always like to point out the institutional perspective and if we as traders think like them, we'll keep our losses small and let our winners run. We can also learn from the above technicals this. If we're trading bullish in stocks that "have a lot of air under there", we'd better know the risk associated with such trading and have our stops in place.

-Staff Analyst

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