Autozone Fails At Resistance

08/29/05 07:50:48 AM

by Arthur Hill

After a failed breakout and successful support break, Autozone looks poised to move lower.

Security: AZO
Position: Sell

Autozone's (AZO) failed breakout and reversal at 100 featured some classic technical signals. First, the stock gapped above 100 and failed to hold it. Filling the gap made it an exhaustion gap, which is bearish. Second, the stock formed a harami (red oval) above 100, and the eventual decline below 100 confirmed this bearish candlestick reversal. Third, the index broke above 100 with high volume, but failed to hold the breakout. See Figure 1.

Figure 1: Autozone. AZO gapped 100 and failed to hold it. Filling the gap made it an exhaustion gap, which is bearish.

Graphic provided by: MetaStock.

Graphic provided by: Reuters Data.

The August decline broke support at 97 and a flag formed over the last four to five days. Sharp declines create oversold conditions that need to be alleviated. This comes in the form of a flat consolidation or a low volume advance. AZO broke support on above-average volume (red arrow) and bounced on low volume (magenta trendlines). This formed a small rising flag, which is a bearish consolidation.

A move below 95 would signal a continuation lower and target further weakness to around 87-88. Two items confirm this support zone. First, the trendline extending up from August 2004 converged on 87 in early September. Second, broken resistance from the March-April highs turned into support around 88.

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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