Lately I've been getting a lot of individual investor/trader questions regarding SDL Incorporated (NASDAQ:SDLI) and I'll address some of them now. I can't answer back to people on an individual basis, but I'll give my opinion of the stocks technicals. Those subscribers that have learned to understand trend (it's usually your friend) will find that SDLI has been in a major downtrend since August 22, 2000 and that trend is still in control. With this in mind, I'd only be "trying" to trade the stock bullish on a short-term nature, but there are other stocks to be trading bullishly and SDLI really isn't on my list.
SDL Incorporated Chart - last eleven months.
On Friday, shares of SDLI broke a short-term upward trend and that should have been "goodbye" for most traders. The overriding trend has been down since August 22nd (Tie Point) and every test of our longer-term downtrend has seen the stock reverse lower. While the stock did manage to close above this downtrend one time (January 23) the next trading session saw the stock trade "inside" the January 23rd range, then break down from there. Currently, I'd continue to avoid trying to trade this stock long as the stock has wild swings. Look for stocks that you feel have a more "predictable" upward trend where support acts as strong as resistance has acted for SDLI.
SDLI... Networker or Semiconductor?
Right now, I'd have to say that SDLI is acting more like a "networking stock" than it is a "semiconductor stock." While the company does make "semiconductor related chips", many of those chips go into networking equipment. If traders pull up a chart of the NWX.X and SOX.X you'll see how closely each of them actually resemble SDLI. Yes, these indexes are tradable, but there is a lot of uncertainty as to which way they're going over the next week or two. With this in mind, try to focus the "bulk" of your capital away from "computer related" technology if you're looking for more predictable returns. If you're going to trade technology "bullish", then focus on a group that has some resemblance of an upward trend intact.
Upward trends don't always guarantee success!
Now, if we're trying to at least put an upward trend in our favor, we also realize that that in itself doesn't "guarantee" success. On Friday, we used upward trends in Emulex (NASDAQ:EMLX) to what I thought was our advantage. Not so said the market today.
Emulex Chart - 60-minute interval.
Trades like these happen if you trade long enough. While the supply/demand chart had the stock looking attractive, the 60- minute chart may have had some traders only trading the stock with a partial position, or only trading a call option where downside could be kept to a minimum. In the future, stocks that are looking technically weak on their 60-minute charts like EMLX will be noted and now fully understood. Had we WAITED for things to calm down in the NASDAQ and WAITED for the stock to break above its 50-period MA, this trade could have been avoided all together. This observation will now help keep us out of trouble in the future!