Charts of the Week, Monday May 15th, 2006
Charts of the Week are stocks that appear to be attractive candidates for short- to intermediate-term (2-6 weeks) returns based on analysis of their daily or weekly chart formations and underlying technicals. Support levels may be used as possible stops.
Analysis: FFIV: (SHORT): With the market having broken sharply for the last 2 1/2 days since the post-Fed announcement about another interest rate raise, a lot of technical damage was done and short-term support taken out. However, intermediate-term, more key support was tested severely on Friday. The oscillators are now oversold, and the market is ripe for a strong rebound rally, but key support at the current levels must be monitored very carefully, and any snapback rally will also be watched carefully for the quality of that rally. If it's a weak one, we could be setting up a pretty ugly summer decline. As a result of that, we're highlighting several potential short positions on stocks that have broken rather sharply and taken out their trend and key support levels. The first one is F5 Networks, which as you can see from the chart has broken its more than 1-year uptrend, The stock broke from a head-and-shoulders type top pattern on a breakaway gap to the downside, and since then has been forming a bear flag at key support. A breakdown from this level will break not only key 1-year price support but also its long-term uptrend line, and if that does occur we'll be looking for price targets around 46, 40 and 35 over the short-, intermediate-, and longer-term. Price resistance and potential stop point up around the 62 and 64 zone, but we're not entering positions here until we get a snapback rally in the markets to see if the stock can move its way back up to retest resistance. Particularly if it does so on low volume it would be a candidate for a short.
Analysis: IIIN: (Short): The next potential short is IIIN. A phenomenal run from the beginning of the year around the 17 zone saw the stock nearly triple, reaching as high as 60 less than 90 days later. But a breakaway gap on heavy volume to the downside occurred in April. A bear flag on low volume was ended last Friday with a nearly 4-point loss on an increase in volume, and this one should be watched carefully as it looks very weak here. If any market rally doesn't occur, and the stock participates with a run back to retest resistance around the 45-47 zone, particularly on low volume, we would seriously consider initiating short positions. Trading targets at that point would be
35, 29 and then the 25 area, with a stop above the 40-day moving average and gap around the 48 area.
Analysis: STMP: (Short): The third potential short to watch is STMP. The stock experienced a more than 150% run in six months from the October lows to the April high, moving from less than 16 to just over 39. A big high-volume breakaway gap occurred near the end of April and since then the stock has rallied back in a bear-flag-type pattern on low volume, with very little improvement in technicals and as a result is a candidate for a short, with trading targets of 25, 21 and 18 over the short-, intermediate- and long-term. Any move above the 33 1/2-34 area would potentially be an area to put a stop in.
Analysis: CERN: (Short): The fourth and final stock this week is CERN. As can be seen from the charts, the stock ran from near the 20 area to near the 50 area in about a one-year period, and then formed a 7-8 month topping-type pattern, during which the underlying technicals deteriorated and indicated a break was potentially happening. That occurred in April. The stock rallied back to resistance on volume at the beginning of May, and then acted miserably last week, diving in a secondary plunge taking it to about 9-month lows. As a result, we would look for a potential snapback and we've been watching it carefully. Anything up around the high 30s to the 41 area or so on low volume would be a potential short trigger. Targets if that does occur would be 32, 27 and22 short-, intermediate- and long-term. Stop above the 42-3 zone particularly if volume accompanies the run.
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