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CBE at $50 - the Mesh Report

CBE at $50

Christian Tharp, CMT October 21, 2011 0

Sticking with yesterday’s GPRO theme, sometimes you can actually come across a stock where the trade is obvious. I don’t necessarily mean obvious to a seasoned trader, I’m referring to a trade that even a new trader can see is obvious. A stock that appears to have that very clear trading opportunity would be that of Cooper Industries Plc.

Cooper Industries is engaged in the manufacturing, marketing and selling of electrical products and providing services worldwide. Cooper has manufacturing facilities in 21 countries. Operations in the United States are conducted by wholly owned subsidiaries of Cooper. The company has two segments: Energy and Safety Solutions and Electrical Products Group. The company serves four markets: the industrial, commercial, utility and residential markets. Cooper also serves the electronics and telecommunications markets. Markets for Cooper’s products and services are worldwide, though the United States is the primary market. In July 2010, Cooper and Danaher Corporation completed the formation of a joint venture combining its Tools business with certain Tools businesses from Danaher’s Tools and Components Segment.

Before discussing potential trading opportunities, please take a look at the 1-year chart of CBE (Cooper Industries Plc) below with my added notations:


(Click for full-sized image)

As you can see from the chart above, CBE had a clear level of resistance at $50 (red). The stock had successfully tested that level 2-3 times over the last 2 months. Now that the stock has broken above that level, $50 is acting as support (green) just as a trader would expect.

 

The Tale of the Tape: The current trading opportunity on CBE is relatively simple: Buy on a pullback to $50, with a stop placed under that level. However, if the stock were to break that $50 level, a short trade could also be made in expectation of a fall to the $44-45 area.

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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