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CHART ANALYSIS


Two Opposing Patterns For F5 Networks

08/26/04 10:19:08 AM
by Arthur Hill

F5 Networks (FFIV) sports two contradictory patterns with a two-month trading range holding the key.

Security:   FFIV
Position:   N/A

The weekly chart is a good place to start for some perspective. The stock advanced from 6.4 in Oct-02 to 39.21 in Jan-04. The advance made it one of the best performers on Wall Street at the time and FFIV ended its uptrend with a four week burst, going from 25 to 39.21.

Figure 1: Weekly chart of FFIV.
Graphic provided by: MetaStock.
 
The decline over the last seven to eight months retraced 50-62% of the prior advance and is finding support around 22. Notice that volume expanded during this decline as the 20-week SMA for volume (magenta line) is noticeably higher than in 2003 (red arrow).


Figure 2: Daily chart of FFIV.

The first pattern at work is a falling price channel. As noted on the weekly chart, this decline retraced 50-62% of the prior advance. Both the retracement (50-65%) and this pattern are typical for corrections within larger uptrends.

The second pattern at work is a large head and shoulders reversal. This pattern extends from Oct-03 to Aug-04 with neckline support at 22. The right shoulder formed from Oct-03 to Dec-03, the head from Jan-04 to Mar-04, and the right shoulder from Jun-04 to Aug-04.

Since June, the stock has bounced off support at 22 three times and been turned back by resistance at 27 twice (gray arrows). These bounces formed a trading range that holds the key for FFIV and possibly the Networking group as a whole. A move above the July high (27.19) would be bullish and signal a continuation of the prior advance (6.4 to 39.21). Conversely, a move below the July low (21.4) would be bearish and confirm the head and shoulders reversal.



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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