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CHART ANALYSIS


SBC Works On A Bullish Reversal

09/09/03 10:35:44 AM
by Arthur Hill

SBC traced out a falling wedge and has yet to reverse the current decline, but signs of a reversal are starting to appear.

Security:   SBC
Position:   Buy

On the daily chart, SBC advanced from late April to early June and outperformed the S&P 500 during this time frame. The stock peaked in June, but the S&P 500 continued its advance and as the stock declined over the last 12 weeks. Notice that the price relative (SBC relative to SPX) declined all the way to its April low. The resulting price pattern looks like a falling wedge that has retraced 62% of the prior advance (19.65 to 27.35). Both the retracement (Fibonacci 62%) and the pattern (falling wedge) are typical for corrections within a larger uptrend.

Figure 1: Daily chart of SBC.
Graphic provided by: MetaStock.
 
Key indicators show waning downside momentum and even some accumulation. MACD held above its July low in August and September, while the stock moved below its July low. This has created the potential for a bullish divergence, but MACD has yet to move above its signal line for confirmation. On balance volume (OBV) has a larger bullish divergence working and even moved to a new reaction high recently. Strength in OBV suggests that downside volume is lighter than upside volume. Volume often leads price and this could foreshadow a breakout at 24.3.

Even though this looks like a correction and indicators show promise, the current decline has yet to find support and fully reverse. SBC moved to new reaction lows at the end of August and sellers are still in control. A large inverted hammer formed on August 27 (gray arrow) and this shows intraday buying pressure that failed to hold. This is a potential candlestick reversal, but requires confirmation with further upside. A move above 24.3 would break the upper trendline, exceed the red resistance line and confirm the inverted hammer. Such an advance would signal a continuation of the April/June advance and project a move above the June high. As long as SBC remains below 24.3, the downtrend remains in place until proven otherwise.



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.

Title: Editor
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E-mail address: arthurh@tdtrader.com

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