Midcap ETF Turned Back At Resistance

10/05/05 08:01:42 AM

by Arthur Hill

The S&P Midcap ETF was turned back at resistance for the third time, and a bearish triple top is taking shape.

Security: MDY
Position: Sell

On the daily chart (Figure 1), the S&P Midcap ETF (MDY) turned back around 132 in early August, early September, and early October. These three highs make for a triple top that would be confirmed with a support break at 127. The downside projection would then be to around 122 (132.5 - 127 = 5.5, 127 - 5.5 - 121.5).

FIGURE 1: MDY DAILY CHART. The S&P Midcap ETF turned back around 132 in early August, early September, and early October.

Graphic provided by: MetaStock.

Graphic provided by: QuoteCenter Data.

A bearish engulfing over the last two days further confirms resistance. This bearish candlestick reversal forms with an open above the prior close and a close below the prior open. The result is a long black candlestick that completely engulfs the prior white candlestick. This pattern is akin to an outside reversal and shows the transition from early buying pressure to late selling pressure.

While the stock moved back to resistance in early October, the accumulation/distribution line failed to follow suit. The indicator kept pace in August and early September with relatively equal highs. However, a lower high formed in early October, showing less buying pressure on the way up. It is a negative divergence and this further reinforces resistance.

We are now waiting on two confirmations. The bearish engulfing is a short-term pattern that would be confirmed with further weakness (below 129). The only potential problem is that this leaves the stock in the middle of its current range. The triple top would be confirmed with a close below 127, and this dramatically increases the odds of further weakness.

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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