No Fun In Toyland

03/15/04 09:12:45 AM

by Arthur Hill

Both Mattel (MAT) and the Dow Jones Toy Index broke important support levels to signal a continuation lower.

Security: MAT & DJUSTY
Position: Sell

Sector and industry play an important part in stock selection and performance. With that in mind, the recent support break in the Dow Jones Toy Index bodes ill for key components in that group. These include Activision (ATVI), Hasbro (HAS), Mattel (MAT) and Jakks Pacific (JAKK) among others.

Figure 1: DJ Toy Index.

Graphic provided by: MetaStock.

The index broke trendline support in November and declined below its September lows in December, just when the toy group is supposed to be in the holiday mode. Some holiday cheer soon kicked in with an advance back above 280 by New Years, but the pattern evolved into a rising wedge. These are classic for countertrend rallies or corrective advances. The break below the lower trendline signals a continuation of the November/December decline and projects a move below 250.

Figure 2: Mattel's daily chart.

Mattel is a key component in the group and has been underperforming for months. While the index moved to new highs in October and December, MAT was wallowing in a trading range well below its April highs. The pattern at work was a descending triangle, which is a bearish continuation pattern. The lower highs show selling pressure at lower and lower levels. The equal lows represent the demand line. With a gap down on high volume, MAT broke below this demand line to confirm the pattern and project further weakness to around 16.5.

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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