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CHART ANALYSIS


Deja vu for Dow Chemical

07/13/04 04:47:29 PM
by Arthur Hill

Dow Chemical (DOW) recently formed two virtually identical patterns over the last four months and looks headed lower.

Security:   DOW
Position:   Sell

After a sharp decline in March, DOW formed a rising wedge that retraced over 62% of the March decline. Even though the retracement exceeded this key Fibonacci level (62%), the stock failed to exceed its prior high and later confirmed the rising wedge with continuation lower (red arrow).

The stock moved to a new reaction low and recovered from mid May to late June. As with the prior advance, this advance retraced over 62% of the prior decline and formed a rising wedge. In addition, the stock failed to exceed the prior high. The break below the lower trendline is quite negative and further weakness below the prior lows (gray arrows 38.4) would project a decline below the May low.

Graphic provided by: MetaStock.
 
In addition to the current rising wedge, there are two other patterns at work. First, the bigger picture shows a large falling price channel (blue trendlines). The index recently bounced off upper trendline resistance and lower trendline support extends to the mid 30's. Second, the stock formed a small consolidation that looks like a flat flag or pennant (blue trendlines). Notice that volume contracted (blue arrow) during this consolidation as trading remains indecisive. Traders should watch the current boundaries for an early clue. A move above 39.76 would be positive and a move below 38.76 would be negative.


Consolidation and declining volume on the daily chart for DOW Chemical.



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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