VMW - A Good Trade Setup

In preparation for my new 2009 stock picks report I've been trolling through several old stocks I use to trade. VMW is one of them and while I haven't traded it for a while I thought it might be fun to take a look at it again. Sure enough a pretty decent trade is set up for us. Look at this chart:

Okay, so what make a good trade setup? Well first of all consider the over all market. The market as a whole is forming a triple bottom. This is a good thing as triple bottoms generally (almost always) follow through with some sort of bull rally. Since the over all market is forming triple bottoms one can also assume many stocks are forming them as well. An analysis of several stocks will show a common pattern of triple bottoms with the last bottom not quite making it back down to support. It looks like that's what we have here with VMW.

Why? First of all the last 4 days (before yesterday) showed a testing of support. Not the support we saw tested back in Dec, but it held 4 days in a row and could easily follow the pattern so many other stocks are following right now.

Secondly, yesterday's large doji day indicates the interest in pushing this stock higher is good. Granted we have some earnings news playing in the picture which was a bit intimidating for traders, but the fact we didn't break support of the last 4 days is a strong sign.

Thirdly the bullish engulfing candle from Friday indicates a potentially good strong bullish move in the next 2-4 days.

And finally the indicators are all turning relatively bullish on this stock confirming we could have a good bullish run coming.

So where will it go?

Well worst case we're looking at one more level of retracement back down to the $18 range - that's about a $4 move down. With some good cheap options you could make some quick money on that. But the much better and more likely move would be the bullish move up. If we can get some confirmation of the bullish move in the form of good volume and a price follow through above yesterday's high we are looking at a first level move up to about $27.50 and a secondary move up to $32. That's a minimum and on up to a potential $10 move that could easily occur in the next 2-4 weeks.

When? Give it a day or so to watch the earnings news fully kick in. I think today traders are a touch skiddish because of VMW's forcast for lower revenues - but come on everybody's forcasting lower revenue and everyone knew it was coming. When traders realize this stock is going to hold it's support the move should happen pretty quickly.

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