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Bullishness builds in Disk Drives

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Today's break above our 50% retracement in the Disk Drive Index (DDX.X) looks to hint of further bullishness in the sector and may continue to provide bulls with some bullish trades. Last week, we felt that traders should be watching shares of component Read-Rite Corporation (NASDAQ:RDRT) as a potential bullish trade above the $6.70 level and that stock is showing good upside today (see November 26th, 03:00 EST Update).

Disk Drive Index Chart -

On Friday, the Disk Drive Index (DDX.X) posted a weekly gain for 9 out of the past 10-week's trading (Monday thru Friday). This group has a "historical" tendency to carry some unimaginable momentum when it gets going. With that in mind, we turned to Read-Rite Corporation (RDRT) last week in the "market monitor" and wanted to be alert to a move in that stock above the $6.70 level.

Read-Rite Corporation Chart -

The volume spike on November 26th, along with break of downward trend is what got our interest. At the time, we didn't feel the stock necessarily offered the most favorable risk/reward for bullish entry, but there were hints that market makers were most likely taking a more bullish stance in their inventory positions. Also bullish were the point/figure chart as the stock had broken above its longer-term bearish resistance.

Trader's should keep an eye on the DDX.X and RDRT and look for similarity going forward. The DDX.X hints that it's next level of resistance is up near the $108.60 level and that would correlate with a RDRT trade near $7.61. From there, subscribers can continue to correlate and understand support/resistance levels in RDRT with that of the DDX.X. Good example of Sector/Stock correlation.

Jeff Bailey
Senior Market Technician
Option Investor

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