PF Chang's Confirms Double Top

10/02/03 08:04:03 AM

by Arthur Hill

The long-term trend remains up for P.F. Chang's (PFCB) as the stock is trading comfortably above the September 1st trendline. However, a recent double top support break projects at test of this important support line and volume patterns are bearish.

Security: PFCB
Position: Sell

The double top formed over the last three months. The first peak formed in July when PFCB met resistance around 50 and failed on a number of breakout attempts. The stock closed above 50 on July 8th, but immediately fell back and has not closed above 50 since (red arrow). The second peak formed in September with a high at 49.80. Although the intraday highs are not exactly equal, they are close enough to warrant a double top. After all, technical analysis is a good mix of "art" and "science." And, a simple visual inspection confirms the pattern.

Graphic provided by: MetaStock.

The intermittent low at 45 holds the key. As long as the low between the two peaks holds, the double top is only a possibility. The recent move below 45 validates the double top and a downside projection can be made. The distance from high to low is subtracted from the support break for a downside projection. In this case, the support break at 45 projects a decline to around 40 (50 - 45 = 5, 45 - 5 = 40). Support around 40 is confirmed by the September 1st trendline and broken resistance (turned support) extending from March 3rd (blue arrow).

Volume patterns confirm recent weakness. Volume peaked in April and has steadily declined over the last five to six months. During the last advance from 45 to 50 (mid-August to late September), volume was above average only once (green arrow). Weak volume is expected in August, but not into September. Low volume suggests low fuel behind the advance and makes it prone to failure. To further the volume argument, the decline over the last few days witnessed increasing volume as selling increases the pressure. Supply is clearly winning the battle against demand and PFCB appears headed lower over the next few weeks.

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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DOUBLE TOPS

PF Chang's Confirms Double Top

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