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CHART ANALYSIS


Sears, Roebuck & Co. Tries A Bounce

12/18/03 10:23:43 AM
by Gary Grosschadl

After a big downleg, this retailer appears ready for a bounce.

Security:   S (NYSE)
Position:   Buy

Today's (December 17, 2003) bullish session is the first reversal day for Sears [S], where the stock closed above its previous day's high since it began its decline at the $55 level. A bullish engulfing candlestick also formed. Engulfing candlesticks, where the present day's candle body "engulfs" the previous day's body, are often a reliable turning point at the end of a lengthy decline. The displayed indicators show that Sears is at oversold levels but no definite signs of a turn are showing on the stochastics indicator. But on the RSI (relative strength index) and the short-term MACD, a hook is forming.

More promising is the MACD (moving average convergence/divergence) histogram which is showing a positive divergence. In 1986, Thomas Aspray developed the MACD-histogram as a way of anticipating MACD crossovers. The MACD-histogram represents the difference between MACD and the 9-day EMA of MACD, also known as the signal or trigger line. The plot of this difference is shown as a histogram, making center line crossovers and divergences easier to identify. In this case, increases in the MACD-histogram indicate that MACD is rising faster than its 9-day EMA and bullish momentum is strengthening. This often is an excellent indication of a coming MACD bullish crossover.

To determine upside targets, a pitchfork has been drawn in as well as several Fibonacci levels. Should the stock make a further move north, a move to the pitchfork's median line of $50 is suggested. Using this supposed low and the previous high above $55, Fibonacci levels are generated. Two levels short of the median line target -- at $48 and $49.59 -- are shown at the 38.2% and 50% levels.

Daily chart showing a probable bounce.
Graphic provided by: Stockcharts.com.
 
Short-term traders should be alert for any reversal or stall signs at or near any of those targets should this bottom turn develop into a decent upleg. An unexpected reversal in the next day or two that brings the stock down to a new low will negate the bullish intent discussed here.



Gary Grosschadl

Independent Canadian equities trader and technical analyst based in Peterborough
Ontario, Canada.

Website: www.whatsonsale.ca/financial.html
E-mail address: gwg7@sympatico.ca

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