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WEDGE FORMATIONS


Alltel Struggles on the Upside

07/17/03 10:49:21 AM
by Arthur Hill

The rising wedge for AT reflects a feeble recovery that looks destine to fail.

Security:   AT
Position:   Sell

The rising wedge is a classic retracement pattern that forms as a reaction rally within a larger downtrend. As a retracement pattern, the advance is expected to recoup 38-62% of the prior decline. Thirty eight percent and 62% represent key Fibonacci numbers and 50% was a favorite of Charles Dow (Dow Theory). In addition, volume is expected to be light and momentum relatively weak as the advance struggles.

Over the last few months, AT formed a picture-perfect rising wedge with the characteristics listed above. The advance retraced 62% of the prior decline. The 20-day SMA of volume has been at low levels since April, which indicates little fuel behind the move (red arrow). RSI failed to move above 55 and the advance features relatively weak upside momentum (black arrow). Even though the stock advanced from 41 to 50, it underperformed the S&P 500 the entire time as the price relative peaked in January and forged a series of lower highs (blue arrow).

Figure 1: Daily chart for AT.
Graphic provided by: MetaStock.
 
Even though this looks like a retracement destined to failure, the medium-term trend is bullish as long as the lower trendline holds. As such, it is wise to respect the bulls as long as the wedge rises. A move below the lower trendline (48.5) would be negative and further weakness below the mid-June reaction low (46.78) would signal a continuation lower. The initial target would be for at least a return to support in the low 40s.



Arthur Hill

Arthur Hill is currently editor of TDTrader.com, a website specializing in trading strategies, sector/industry specific breadth stats and overall technical analysis. He passed the Society of Technical Analysts (STA London) diploma exam with distinction is a Certified Financial Technician (CFTe). Prior to TD Trader, he was the Chief Technical Analyst for Stockcharts.com and the main contributor to the ChartSchool.

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