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CHART ANALYSIS


Nortel Network's Longer-Term View

02/27/04 10:56:20 AM
by Gary Grosschadl

Nortel has almost doubled in the last three months. After such a dramatic rise what are the downside and upside probabilities?

Security:   NT (TSX) Toronto
Position:   Hold

This weekly chart shows a dramatic comeback from the .80 range back in October 2002. The other very noticeable characteristic is that the stock's rise balked at previous resistance, demonstrating how stock behavior has a memory of its previous support and resistance.

A pitchfork was drawn to put this very powerful move in perspective. A hallmark of pitchfork analysis is a move from the lower median line often makes it to the center median line. It takes a super bull move for the stock to go further to hit the upper median line -- something not seen that often. Here is something rare indeed, a move blasting through both median lines and then using the uppermost line as a further launching pad to higher highs. After a move like that, any stock earns a rest or is due for some consolidation.

Weekly chart showing Nortel's dramatic price moves.
Graphic provided by: Stockcharts.com.
 
For now Nortel appears to be consolidating on this weekly chart in a rectangular range of $10 - $11.25. A break either way out of this range will likely be the bigger trading signal for the patient trader working in longer time frames.

A break above the range will likely test the previous high of $11.94. A bold move past this level would bring a higher target of $12.64, this being the 200-period exponential moving average on a multi-year chart. A move below $10 brings a test of mid-candlestick support of $9.50 so a support zone of $9.50 - $10 is suggested. If this zone fails, then support could be found at any of the previous pitchfork median lines depending on the severity of the decline.

The next major move for Nortel could be a substantial one -- but will it be up or down? Watch for a break either way and the likely cataylst could well be major news and or a solid move up or down for the Nasdaq index.



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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