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Alltel Forms A Big Bad Bearish Engulfing Pattern

04/26/05 08:04:10 AM
by Arthur Hill

A negative divergence and a bearish engulfing at resistance spell reversal for Alltel.

Security:   AT
Position:   Sell

A negative divergence and a bearish engulfing pattern at resistance spell a reversal for Alltel (AT). This stock broke support at 58 with a gap down in January. Broken support turned into resistance with a reaction high in early March and a bearish engulfing in late April. The early March candlestick reversal featured a long white candlestick, doji, and a long black candlestick. The first two make up a bearish harami cross, and the latter two formed a bearish engulfing (blue oval) (Figure 1). Further weakness was confirmed below 57.

After another run to resistance, the stock formed a large bearish engulfing pattern (red oval). Note that the stock opened at 58.5 and closed at 57.1 to form a long black candlestick that completely engulfed the prior white candlestick. The opening showed that the bulls were in charge early on, but the weak close shows a total collapse by the bulls and a flurry of selling pressure. At the very least, this bearish reversal pattern confirms resistance around 58. Further weakness with a move below 56 would confirm the bearish engulfing and open the door to at least a support test at 54.

Figure 1: Alltel. A negative divergence and a bearish engulfing pattern at resistance spell a reversal for AT.
Graphic provided by: MetaStock.
Graphic provided by: Reuters Data.
 
While the stock recovered in March-April and moved all the way back to its prior high, the ultimate oscillator (7,14,21) formed a lower high and negative divergence. Momentum was clearly not as strong on this advance, and the indicator met resistance just above 50. The negative divergence and move back below 50 are bearish. As long as the indicator remains below the April highs (54), the sell signal is in force and lower prices are expected.



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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