Watch the zone - FIRE | The Mesh Report

Watch the zone – FIRE

Christian Tharp, CMT August 19, 2011 0

Sometimes trading in the stock market can be complicated, and at times, confusing. It can be challenging to know what trade to make and when to make it. However, there are some trading opportunities that are clear and somewhat obvious. Usually, the “keep it simple stupid” trades tend to be the best. Of course, simple or not, that doesn’t mean the trade will always work out in your favor.  But, at least you knew it was the right trade at that time. A potential trading opportunity that appears to meet the “simple” description would be for the stock FIRE (Sourcefire, Inc).

Sourcefire, Inc. (Sourcefire) is a provider of cybersecurity solutions for information technology (IT), environments of commercial enterprises, including healthcare, financial services, manufacturing, energy, education, retail and telecommunications companies, and federal, state and local government organizations worldwide. Sourcefire solutions consist of multiple hardware, software and cloud-based product and service offerings. Its security solutions provide customers with a network security defense of assets and applications before, during and after an attack. It manages open source initiatives, such as Snort, ClamAV and Razorback.

Please take a look at the 1-year chart of FIRE (Sourcefire, Inc) below with my added notations:

(Click for full-sized image)

It’s relatively obvious, isn’t it? FIRE has been holding a very important level of support in the area of $22.50 – 23.50 for the last 10 months. No matter what the market has or has not done this year, FIRE has not broken below that general area of support.  If the market should move lower, FIRE would most likely move closer to it’s support area for a potential trade.

The Tale of the Tape: FIRE has held a very important support level in the $22.50 – 23.50 area throughout the entire year or so. If the stock were to approach that level again, a trader would want to enter a long position with a stop under that entry. To narrow the “zone” down a bit, analyze the market to see if it is also at a potential support. If FIRE were to break its support area, a short position would be recommended instead.

Before making any trading decision, decide which side of the trade you believe gives you the highest probability of success. Do you prefer the short side of the market, long side, or do you want to be in the market at all? If you haven’t thought about it, review the overall indices themselves. For example, take a look at the S&P 500. Is it trending higher or lower? Has it recently broken through a key resistance or support level? Making these decisions ahead of time will help you decide which side of the trade you believe gives you the best opportunities.

No matter what your strategy or when you decide to enter, always remember to use protective stops and you’ll be around for the next trade.  Capital preservation is always key!

Good luck!
Christian Tharp, CMT

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