Xilinx: Cup Is Half Full For Now

11/02/04 08:45:20 AM

by Arthur Hill

Despite a little hesitation, the recent breakout in Xilinx (XLNX) remains bullish and further strength should be expected as long as...

Security: XLNX
Position: Buy

The Xilinx (XLNX) weekly chart shows a classic correction. After the advance from 13.50 to 45.40, the stock retraced 62% with a decline back to support from broken resistance. The retracement is typical for a correction, as is the return to broken resistance, which turns into support. In addition, the decline traced out a falling price channel (magenta trendlines), and this is also normal for a correction.

The breakout is confirmed with volume and momentum. The stock found support around 25 over the last few months and broke above the upper trendline in October. Note that upside volume was above average in September and October (gray arrows). In addition, the moving average convergence/divergence (MACD) moved above its signal line for the first time since March (green arrow).

Figure 1: XLNX

Graphic provided by: MetaStock.

Graphic provided by: Reuters Data.

The combination of a classic correction and a confirmed breakout signal a continuation of the prior advance. As such, a move above the January high can be expected over the next few months, and the cup remains half-full.

Traders should always be prepared for the unexpected, and there is also a scenario that would turn the cup half-empty. The advance over the last two months looks like a rising flag, which is typically a bearish consolidation. As long as support at 26 holds, this potentially bearish setup is not an issue. A move below 26 would signal a continuation of the prior decline and project a move to around 20.

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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Xilinx: Cup Is Half Full For Now

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