Figure 1: Weekly chart of Software HOLDRS.
On the weekly chart, the Software HOLDRS (SWH) formed a large rising wedge over the last 18 months. The advance from 20.08 to 40.2 seems quite large and bullish enough on its own, but a look at the prior decline shows this to be a mere retracement. In fact, the advance retraced a Fibonacci 61.8% of the prior advance and broke trendline support earlier this year.
|Figure 2: Daily chart of Software HOLDRS.|
|Graphic provided by: MetaStock.|
|To makes matters even more bearish, a head-and-shoulders reversal is taking shape on the daily chart. The left shoulder formed from September to October, the head peaked in January and the right shoulder evolved over the last two months. Neckline support resides at 33.5 and a break below this level would project further weakness to around 27 (40.2 - 33.5 = 6.7, 33.5 - 6.7 = 26.8).|
|The head-and-shoulders reversal is a large bearish pattern, but the rising wedge points to an even bigger decline. As a continuation of the prior decline (50.91 to 20.08), a move below the October 2002 low would be expected. With Microsoft, Adobe, Intuit and Oracle featuring in this ETF, a sharp decline would no doubt weigh on the Nasdaq.|
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|Phone # for sales:||3215345465|
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