Position Trader: Universal Electronics, Inc. (UEIC)

Universal Electronics, Inc. (UEIC) provides pre-programmed universal wireless control products and audio-video accessories for home entertainment systems. UEIC had been in a strong uptrend throughout 2007, but suffered a sharp reversal off the highs at the end of the year and took back all of 2007's gains within just a couple of months. Since then the stock has been congesting at the lower end of the year's range and recently experienced its second swing higher on a weekly time frame. Stocks tend to break out of trading ranges following a second or third swing off the lows of the range, so the greatest opportunity is when one catches these moves as they are just beginning to turn lower. Since this is the second swing, there is still the potential for a third, but as long as the upper channel holds then the setup remains valid.

A target on this particular pattern is an equal move as compared to the initial drop off highs, which in this case is the move lower at the beginning of year, which could easily take the stock back into $7/share territory over the course of a year if the pace on the breakdown were to remain comparable to the previous descent. However, when prices start to get this low, the odds are higher than the pace on a breakdown will actually be more gradual than the initial reversal, so paying attention to previous lows and congestion levels is a better way to gauge potential. This makes the $17 and $13 a share levels strong support.

Stocks with similar setups include AMZN and XRAY.

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