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CHART ANALYSIS


Sandisk On The Verge Of A Breakout

04/02/04 01:35:07 PM
by Arthur Hill

Sandisk (SNDK) held support in February and looks poised to break resistance, but low volume still haunts the stock.

Security:   SNDK
Position:   Buy

While the Nasdaq moved to new reaction lows in March, SNDK held above its February low and started showing good relative strength, or rather less weakness than the Nasdaq. The stock found support at 23.5 from the August low and bounced with a volume surge in late February and early March (green arrow).

Figure 1: One year daily chart of Sandisk.
Graphic provided by: MetaStock.
 
Despite this bounce, the stock remains in a medium-term downtrend that is defined by a falling price channel (magenta trendlines). This decline retraced 50-62% of the prior advance (8.21 to 43.15). Both the size of the retracement and pattern are typical for corrections. However, a continuation higher would not be signaled unless the stock breaks above resistance at 30 (red line). This level is confirmed by the trendline extending down from 43.15 and the early March reaction high.


Figure 2: Sandisk daily chart with RSI and Chaikin money flow.

Indicators point to a pending break, but low volume is a concern. Chaikin money flow, which measures the daily close relative to the high/low range and incorporates volume, formed a bullish divergence in February and is flirting with the zero line. A move above .10 would break the early March high and turn signs of accumulation into actual buying pressure. Similarly, RSI formed a bearish divergence in February and recently moved above 50. Further strength above 60 would break the prior highs and signal a momentum breakout. The lone caveat remains absolute volume, which has been low over the last few weeks. For a breakout to be considered robust, the stock needs to move above 30 on above average volume.



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.

Title: Editor
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