Buying Pressure Wanes On Qlogic Advance

12/14/04 08:26:57 AM

by Arthur Hill

After a marvelous run since mid-August, Qlogic shows signs of fatigue and a bearish pattern is emerging.

Security: QLGC
Position: Sell

The advance over the last few months traced out a rising wedge for Qlogic (QLGC). Even though these are typically bearish patterns, it would be wise to respect the current uptrend as long as the lower trendline holds. A move below the lower trendline and late November lows (33.87) would confirm other bearish indications and argue for a significant decline.

The first bearish indication is weak Chaikin money flow. This indicator measures the accumulation (buying pressure) or distribution (selling pressure) over a period of time. The current indicator is set at 21 days, which covers about a month. While the stock advanced to new highs in November and early December, Chaikin money flow remained well below its September and November highs. Buying pressure has not kept pace with price action. This has created a large negative divergence, and a move into negative territory would move the indicator from weak buying pressure to actual selling pressure.

Figure 1: Chaikin money flow, QLGC. The first bearish indication for Qlogic is weak Chaikin money flow.

Graphic provided by: MetaStock.

Graphic provided by: Reuters Data.

The second bearish indication is a large bearish engulfing pattern (red circle). This is a bearish candlestick reversal that requires confirmation. The open of the black candlestick is above the prior close and the close is below the prior open. The result is a day when the bulls started strong, but the bears took and won the day. Further weakness with a move below the late November low (33.87) would confirm this pattern. At the very least, it would solidify resistance around 39. At most, it would signal a reversal that could evolve into a decline back to the upper 20s.

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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Buying Pressure Wanes On Qlogic Advance

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