I've received some emails about when to take some profits or think about shorting a stock. For what it's worth, I'm going to walk through my thought process, using Ciena (NASD:CIEN) as an example.
Ciena Daily Chart
Imagine if you will, that we bought Ciena at $33. We've recognized some nice profits on paper, but should we hold it or sell? The bearish shooting star candle that formed yesterday, prices closing below the 50-day moving average, and an overbought stochastic had me getting ready to dump my long position this morning. CIEN proved my theory wrong and moved higher this morning. My next plan of attack was to slap a retracement bracket on Ciena. I fiddled with some different anchor points, but the previous high at 121 provided the best results. The 38.2% level matched up perfectly to yesterday's high, and the area between 38.2 and 50 contains a nice congestion area that should offer resistance. Using these levels, I would expect Ciena to have trouble getting above $67. If it does, any advance should get bogged down at the congestion area between $67 and $77. What if I want to figure how far Ciena could fall, or if I'm thinking about shorting this?
Ciena 60-Minute Chart
Dropping down to the 60-minute chart, I noticed that yesterdays low at $57.35 should be the first downside target. Next I anchored a retracement bracket to yesterday's high to see what it had to say. The 38.2% level confirmed that a series of highs around $54.20 should be the second downside target. A 50-period moving average that has just crossed above the 200-period should also aid in stopping a decline. So in summary, Ciena, trading at $64, has short-term upside potential of $3, and $7 downside potential.