After being mixed at the open of trading, stocks are starting to show some strength and there are some charts like that found in shares of Citrix Systems (NASDAQ:CTXS) that should be getting bulls and bears attention. Whether I'm a bull or bear, its supply/demand charts like these that give hint that demand is starting to outstrip supply in certain stocks and that there is actually hope for some sectors of technology.
Citrix Systems (CTXS) - $0.50 and $1 box
If I were short this stock, I would definitely thrown in the towel at $31 when the stock proved it could finally trade the $31 level. If I were a bullish trader looking to try and puts the probabilities of success in my corner, then I would find it tough to argue that I shouldn't be giving the stock an opportunity to the long side. Here is a stock that has broken a downward trend and traded a level at $31 where supply used to be too heavy. The recent test of upward trend looks to have been bought. This has overriding trend being up. A good strategy I think would be to simply buy a 1/2 position long in the stock or call option and see what happens. There are several stocks in the software group that look like CTXS back in late April that are just testing their downward trends. CTXS looks to be a leader and this would be a starting point for traders in the group.
Retek Point and Figure Chart
We've been talking a lot lately about software stocks, and point and figure charts, so lets look at the point and figure chart of one of Premier Investors software plays, Retek (NASD:RETK).
Retek Point and Figure Chart
After dropping in February, share of Retek began to build a base. During that time trading was a little volatile, giving conflicting buy and sell signals that was tough to trade. The buy signal at point #1 turned out to be the one that finally cleared the congestion area, but traders that had been whipsawed over the past two months may have been a little wary about pulling the trigger. The pullback at point #2 that found support at the top of the congestion area offered a chance to get back on board. Since then Retek has continued to trade higher without every giving a sell signal, so the bullish price objective of $50.50 remains intact.
The BPO was calculated by taking the number of Xs in the column that gave us our first buy signal (point #1), taking that times the box size (note that the box size changed from .5 to 1, so the calculation must be broken down into two components), and then multiplying that number times the bullish multiplier of three. So we have 3 Xs * box size of .5 * bullish multiplier of 3 = 4.5. Next we have 9 boxes * a box size of 1 * the bullish multiplier of 3 = 27. Adding those two together we get 31.5. Add that to the column low of 19, and we get our price target of $50.50.
While other tech stocks, say networking or telecom, have been giving sell signals, Retek has held up. The stocks came close to giving a sell signal at point #3, but apparently there is enough demand to keep the stock moving higher. Retek is down 39 cents today, but would have to trade $39 to give a three-box reversal into a column of Os, and would have to drop to $35 to give a sell signal that would cancel the bullish price objective. The prior column high at $43 could slow RETK down on its way to its BPO.