Xilinx Attempts Head And Shoulders Reversal

09/09/05 01:36:57 PM

by Arthur Hill

Xilinx formed an inverse head & shoulders over the last few months, but volume is not impressive and resistance is close at hand.

Security: XLNX
Position: Hold

The semiconductor group, which has been hot, caught fire Thursday. However, not all stocks have been participating. Texas Instruments (TXN) is trading near a 52-week high, while Xilinx (XLNX) has declined from 33.39 to 25.22 in 2005. XLNX is trading above its recent lows and the current consolidation looks like an inverse head & shoulders (Figure 1).

FIGURE 1: The July surge featured good upside volume (green oval), but the late August bounce was a bit light (blue oval).

Graphic provided by: MetaStock.

Graphic provided by: Reuters Data.

These are bullish reversal patterns that require confirmation with volume and a resistance breakout. First, it is important that upside volume outpace downside volume. The July surge featured good upside volume (green oval), but the late August bounce was a bit light (blue oval). Even though this can be attributed to summer trading, I would still like to see volume increase to validate any breakout. Volume is fuel and a full tank is needed to start a sustainable advance.

Neckline resistance resides around 29.5 and a breakout is required to confirm the pattern. In addition, there is resistance around 28.5 from the 200-day simple moving average (SMA). A break above 29.5 on good volume would be bullish and project further strength to around 33 (29.2 - 25.2 = 4, 29.2 + 4 = 33.2). The distance from the neckline to the head (~4) is added to the breakout point (29.2) for an upside projection. Without a resistance breakout, this is just another consolidation.

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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