The Squeeze and the Trigger

I like trading setups that have multiple components working in their favor, like well-defined support or resistance levels and the potential for volatility. Stocks that are being "squeezed" and have a high level of short interest can alert us to potential volatility, and trend lines and pattern formations on their charts provide the trigger levels. Here are two long candidates that have both trading components.

The networking and communications company, ADTRAN (ADTN) has been forming a rounded bottom for the last three months with resistance in the $23 area. One way of determining if a stock is being "squeezed" is to look for the Bollinger Bands (green), which measure the standard deviation of price, to move within the Keltner Channels (red), which measure average true range movement, as is the case on the chart below. The Relative Strength Index (RSI) and daily moving average convergence/divergence (MACD), which is overlaid on a weekly histogram of the indicator, are all tracking higher and above their centerlines. There was a large surge in positive volume last week and Chaikin Money Flow reflects accumulation. The stock has a 9.5% short interest, and a close near current levels is a long entry point with a trailing percentage stop....137 more words left in this article. To read them, just click below and try Real Money FREE for 14 days.

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