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The Deipnosophist

Where the science of investing becomes an art of living

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Location: Summerlin, Nevada, United States

A private investor for 20+ years, I manage private portfolios and write about investing. You can read my market musings on three different sites: 1) The Deipnosophist, dedicated to teaching the market's processes and mechanics; 2) Investment Poetry, a subscription site dedicated to real time investment recommendations; and 3) Seeking Alpha, a combination of the other two sites with a mix of reprints from this site and all-original content. See you here, there, or the other site!

10 July 2006

One reader points a hot light at RACK

A shrewd investor, Deipnosophist reader, and friend who signs his posts as Anatole K. (skinowski), writes the following commentary re Rackable Systems/RACK...
Good morning, David!

I did not buy RACK at 32, but I did buy it under 34, on the morning weakness on June 23. Enjoyed a nice few point swing, and got out. Thanks for the idea! I think this will not be my last encounter with RACK. I am considering buying it at 36 - a nice support level, and a 50% retracement level of the recent rally. Now, the issue I have with this stock is the classical 5 wave descent which it traced out since the top in April; from an Elliottian pont of view, this suggests increased odds for another (matching) decline. In fact, I think that an impulsive decline in an important (and imo sensitive) stock like RACK may be in its own right a bearish indicator for the markets.

[click on image to enlarge]

From an Elliot Wave perspective, this down fiver suggests potential bearishness in the future... At least another impulse move down to complete an "ABC" correction...
Well, I must admit I do not disagree with Anatole. I agree there is important support at $36-35, and crucial support at $32. In fact, a failure to hold at $32 changes materially the picture for the stock picture, and thus my interest. I suppose, however, the crucial difference between Anatole's and my outlook is time frame. Anatole seemingly prefers to trade the short term price oscillations whereas I prefer to expect those very same price oscillations and instead accumulate more shares. The lower the price the better, although as just mentioned a failure at ~$32 would change my investment interest.

Continuing to watch closely the ongoing inter-market dynamics and assuming the bullish resolution for Rackable Systems/RACK, it would not surprise me that, come October 2006, the shares would make a sneak attack on $50. But that possibility remains dependent on the market's future and the successful breach of multiple levels of resistance for RACK. That first level of resistance lies dead ahead at $41-42, the level that confirms the past 3 months of decline as an intermediate term base prefatory to higher highs. Rather than a top, as some observers believe, including Anatole.

What do you think...?
David M Gordon / The Deipnosphist

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