Tuesday, September 19, 2006

Reading the tape

One thing that Jesse Livermore was always known for was his ability to "read the tape". When he was interested in a particular pivot point trade he would sometimes put out a huge buy(or sell) order and see how fast the shares were gobbled up. The orders would help him determine the demand for the stock and give him an idea of the path of least resistance, as he would put it.

The day after I posted my "watch list" I had some time at my desk and was watching the price movements of Silicon Image Inc. The price pushed towards $13 and I saw some big time ask orders being swallowed up without any problem. I'm no Jesse Livermore, but I was instantly reminded of his descriptions of tape reading and felt that the path of least resistance was to the upside. I started a position just under 12.90. As the chart shows, the stock declined and tested the 12.25 pivot point on lower volume. Looks to me like the path of least resistance is to the upside. On a strong move up I will add to my position.

And another thing, looks like I'm not the only one watching SIGM. Michael Ashbaugh posted a very similar analysis of SIGM's technicals today on MarketWatch. Looks like I might be learning something.

Update: I'm watching SIGM again reach towards new highs. It looks like there is still some overhead resistance at soon as the price reaches 13.05 and above.

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