Last week, L-3 Communications Holdings Inc (NYSE:LLL) moved up right into an old level of support, represented on the chart below by the red line and pulled back immediately. You might be asking why did the stock sell off from that level? Note in the chart below, prior to breaking down, L-3 Communications rebounded multiple times from the same level it recently sold off from, at the $113.50 area represented by the red line. That level was only broken once the stock had a major gap down below it, around July 31st.
Trading Tip:
This chart is a great example of how old support areas can become resistance once broken. The same goes for resistance levels becoming support once the stock breaks above and confirms. Reading the charts properly will not only alert you of when to expect a support or resistance level to fail, but also when the roles have reversed and an easy trade is presented, like this example.
Now, when looking at the LLL chart, we can see the 50 daily moving average (white line) and 200 day moving average (yellow line) meeting right in that area, forming what we call a necktie. Based on all these technical factors coming into play, L-3 Communications Holdings, Inc. (NYSE:LLL) should pull back further from this area.
L-3 Communications is a stock that has been extremely weak even as the markets stay near all time highs. With the markets developing overbought charts, and the current bearish pattern found in both the daily and weekly charts of L-3 Communications Holdings, Inc. (NYSE:LLL), the stock should outperform the markets to the downside. The two levels to watch if L-3 Communications falls will be $92.80 and 84.67. These two levels can be utilize for taking profits if you are short the stock or for buying the stock for quick bounces higher. This is how traders make money, consistently, without taking on big risk. As I have shown you, if you read the LLL chart properly you would have been able to play the red line for bounces higher when the level was supporting the LLL stock, and been prepared to profit when the stock sold off as well. If you can read the charts as we do, then you will laugh at the measly percentage offered to you by your local bank on your savings account, you will begin to find trades like this consistently and control your own financial freedom. I have been trading the markets independently for a very long time now, I am a perfect example of how it can be done, and you can do it too. Happy trading folks!
