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Traps galore in Genesis

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In past commentary I've point out "bear traps" in the point and figure chart of Genesis Microchip (NASDAQ:GNSS). I guess it is only fair that the tables get turned from time to time and bulls find themselves having been trapped. In recent weeks, we've alerted traders that the NASDAQ-100 was "bear confirmed" and that technology stocks were suspect to lower prices.

I fear that there are those investors/traders in the market that don't understand what a "bear market reading" is, or how important it is for traders/investor to understand how important market/sector analysis can be. We've also mentioned that the Semiconductor Bullish Percent from Dorsey/Wright and Associates has been in "bear confirmed" status.

Recently, OptionInvestor.com profiled a bearish put play in shares of Genesis (NASDAQ:GNSS) which is considered a "semiconductor" stock and today, put traders are seeing nice gains in their puts. How low can she go and what has taken place is important in order to leave with a gain.

Genesis Microchip Chart - $1 box

The triple-top "buy signal" at $61 may indeed had some bulls trying to play that pattern to the bullish side, but under "bear confirmed" status for the semiconductor sector and the NASDAQ- 100, that type of trading may now find bulls being trapped in a stock they couldn't wait to be rid of today on the break below bullish support trend and also witnessing a spread triple bottom "sell signal." It makes sense perhaps that a "sell signal" in a "bear confirmed" market would be more powerful than a "buy signal" in a bear confirmed market.

Just as shares of GNSS gave a sell signal back in November at $42 below a spread-triple bottom, that sell signal came under a "bull confirmed" status. The overriding market/sector bullishness or bearishness play an important role in how one stock may actually trade.

I've performed two bearish vertical counts that GNSS has given in recent weeks. The first sell signal off the top hinted at a bearish price objective of $37, and the current vertical count hints at $29. I've added some bearish channels on the point/figure chart and perhaps we see a channel line right now that could be considered a "bearish support trend" or lower end of a channel." To be safe, I'd lower my stop in the put option to $50 or just above that level, should the stock reverse higher. Should the decline continue, I'd be targeting the $43 level, which also come close to the currently rounding higher 200-day moving average at $40.

Continue to monitor your risk/reward from current levels. Constantly ask yourself... "what have I currently gained that I could lose, and how much more gain am I realistically looking for?" Once you have those two variable under consideration, you then can better adjust your stops. If you're targeting the $43 level, then you are looking for $3 more downside. Thus a good trader would lower his/her stop to only risking $3 from current trading at $46, or $49. That's pretty close to the $50 level mentioned from above and observation of downward channel.

Good trade! Be willing to pay yourself for your work and don't be complacent.

Jeff Bailey
Senior Market Technician
Option Investor

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