Lexmark Turning Back At The Gap

08/26/04 08:45:21 AM

by Arthur Hill

Lexmark (LXK) broke support with a big gap and both are now returning to haunt the stock on its recovering.

Security: LXK
Position: Sell

Broken support turns into resistance. This is a basic tenet of technical analysis. It is clear that LXK established support at 90 with five bounces in April, May and June (gray arrows). In fact, the stock formed a trading range with support at 90 and resistance at 97. After a cautious forecast in mid-July, the stock gapped lower and broke support 90 (red arrow). A small rising wedge (magenta trendlines) formed as the stock worked off the oversold condition and then continued lower with a sharp decline below 80.

Graphic provided by: MetaStock.

Despite a recovery over the last two weeks, the stock is finding trouble around 89-90 again. This level acted as resistance in late July and again in mid-August. Notice that there is a gap between 89 and 90 with no trades. This gap also acts as resistance and the stock needs to move above 90 for the current advance to be considered material.

Three days ago, the stock formed a hanging man candlestick (small white body and long lower shadow marked on the chart with the black arrow). These are bearish candlestick reversal patterns that require confirmation with further downside. The stock declined three days later, but is holding above the 17-Aug gap. Further weakness below this gap (85.5) would confirm the hanging man and open the door to further weakness below the August low.

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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Lexmark Turning Back At The Gap

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