Oracle Declines To Key Retracement, But Still Bearish

05/17/05 08:19:17 AM

by Arthur Hill

Oracle is firming near a key retracement, but needs a catalyst before turning bullish.

Security: ORCL
Position: Hold

On the weekly chart (Figure 1) for Oracle (ORCL), the stock peaked in December with an exhaustion gap and shooting star candlestick (red arrow). This reversal foreshadowed a decline below 12 and the stock retraced 62% of the prior advance with a falling price channel. Both the retracement and the pattern are typical for corrections. However, the stock is still well below the upper trendline and the current downtrend has yet to be reversed.

Figure 1: Oracle weekly chart. The stock peaked in December with an exhaustion gap and shooting star red candlestick (red arrow). This reversal foreshadowed a decline below 12 and the stock retraced 62% of the prior advance with a failling price channel.

Graphic provided by: MetaStock.

Graphic provided by: Reuters Data.

The July-August reversal confirms the need for a catalyst. The stock became oversold when the stochastic oscillator moved below 20 as early as March 2004. There was a reversal of sorts in June 2004 (gray oval), but it failed to hold and the stochastic oscillator moved back to oversold (red arrow). The advance did not take hold until the stochastic oscillator moved above its prior highs and above 50. In addition, note that the stock surged on high volume in September, and this provided a bullish catalyst just before the oscillator signal.

Last week's surge carried the stochastic oscillator above 20, but the stock remains below its April highs. This is a start, but this is only the first bounce from oversold levels and could be similar to June 2004. Followthrough and a breakout of some sort are key. As such, I would look for the stochastic oscillator to move above 50 and the stock to exceed its April high (12.75) with good volume before turning bullish.

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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