|Best Buy started showing signs of weakness in late December and early January. The S&P 500 advanced above 1100 at the end of December to a 19 month high. BBY managed to bounce in late December, but came nowhere close to its prior high at 62.7 and severely underperformed the S&P 500. SPX continued its advance in January and BBY could only muster a rising flag and a 38-50% retracement of the prior decline to extend its underperformance.|
|Figure 1: Daily chart of BBY.|
|Graphic provided by: MetaStock.|
|With the rising flag trendline break (black arrow), BBY signaled a continuation lower and looks set to further underperform the S&P 500. Also notice that volume during the October/November advance was low and then expanded with the December decline. This volume expansion shows new selling pressure and suggests more than just a mere correction. In addition, the rising flag and retracement amount (38-50%) are typical of countertrend rallies.|
Figure 2: Weekly chart of BBY.
Now that lower prices are expected, it makes sense to look at some downside targets. Flags are said to fly at half-mast and the prior decline was 14.2 points. A similar move from the top of the flag would project further weakness to around 40.8. Looking at the weekly chart, a classic 50% retracement of the prior advance (17 to 62.7) would extend to around 40. Also, the lower trendline of a potential descending price channel extends to around 40. The upper trendline was drawn first and the lower trendline was drawn parallel for a downside target.
|No matter how you slice it, all roads lead to 40 over the next few week and months. It would take a move above 55 to negate this bearish prognosis.|
|Address:||Willem Geetsstraat 17|
|Phone # for sales:||3215345465|
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