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CONSOLID FORMATION


Barr Labs Breaks Down From Consolidation Pattern

03/17/04 10:14:24 AM
by Ashwani Gujral

Most stocks or commodities cannot maintain a sharp rise or fall for an extended period of time. Sharp moves in any direction are often followed by a consolidation pattern, with an eventual breakout or breakdown in the same direction. The Barr Labs chart is one such example.

Security:   BRL
Position:   Sell

Barr Labs fell sharply from the $85 level to about $72 and then went into a consolidation pattern as can be seen in daily chart. This consolidation pattern has broken down on very heavy volume and the stock now seems headed to the $63 level in the short-term. This target is calculated by extrapolating the move prior to the consolidation pattern to the breakdown of the consolidation pattern.

Figure 1: Daily chart of Barr Labs.
Graphic provided by: www.esignal.com.
 
After a correction, it is almost impossible to determine if the stock is going to rally or if it has suddenly entered a downtrend. Watch for a series of lower highs, indicating that the stock is unable to hold on to higher levels. Such a pattern can be both a consolidation in the fresh down move or a distribution pattern, depending on the time frame you are looking at. The breakdown in Barr Labs has occurred on high volume and that makes this significant and the daily RSI has shifted its range from bullish to bearish.


Figure 2: Weekly chart of Barr Labs.

On the weekly chart, Barr Labs has made a lower top as well and a breakdown below the $70 level could lead to the $60 level. If the stock goes above $80, it may restart its upmove. At this point this downmove appears to be a correction of the strong upmove from $32 to $85 level. Also $60 has been both a strong resistance and support level in the past and converges with a 50% retracement of the entire upmove. Hence, any move below the $60 level is likely to be downtrend. The RSI seems ready to break a support that has held on for many months. This should be taken seriously as moves in the indicator often lead the price. The MACD on the weekly chart is in a sell mode as well.



Ashwani Gujral

He is founder of AGIP Securities Pvt. Ltd. which offers money management services, live chat rooms (during market hours) and independent technical analysis consultancy. The company has a big media presence from the likes of CNBC, NDTV Profit, and ZEE Business.

Title: Chief mkt strategist
Company: AGIP Securities
India
Phone # for sales: 9871066337
Website: www.ashwanigujral.com
E-mail address: contact@ashwanigujral.com

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