Wednesday, November 3, 2010

Power-one Begins Breakout Move (PWER)

Chart forPower-One Inc. (PWER)

In early September we mentioned the tendency of PWER to gap up on earnings
but then fall to fill the gap before resuming its uptrend.

The difference last Friday was that the stock gapped pre-market and had given back that 19% move by 11 a.m.

On Tuesday the stock was up 41 cents (4.3%) to $9.94. This morning it showed a few pennies worth of strength in early pre-market action.

It is now running into an area of congestion where the average buyer over the last 50 days bought the stock at $10.10, 20 days at $10.46 and 10 days at $10.52.
These are the simple moving averages and I need to stress there is nothing magical about them, they are just lines on a chart.

The two reasons to be aware of them are:
1) Everybody watches them, there is some herding effect, "Okay, it's safe to go back in the water" and
2) They indicate where psychology may play a role. If a person (manager, institution) has suffered a paper loss and cut a deal with the trading gods, "If I can just get back to even I promise I'll sell, never again buy a stock with a beta over .5 and get to work on that Middle East peace thing..." this is where the selling would occur.

If the stock gets through that $10.10 to $10.52 area on this (second) attempt there isn't much to stop it hitting the $13.04 all time high again.

This kind of exercise is only worth the time if it's a decent company and growing. See:
"Best in Class: Power-One Poised to Invert Solar Stocks" (PWER)" and
"Power-One CEO Discusses Q3 2010 Results - Earnings Call Transcript"

Here's the chart showing the last two pop-n-drops and Friday's "it all happened in three hours" moves, from BigCharts: