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HEAD & SHOULDERS


Sandisk: Head & Shoulders Or Just A Support Test?

12/13/05 12:59:33 PM
by Arthur Hill

Sandisk has a potentially bearish pattern working, but the stock is assumed bullish until the bear is confirmed.

Security:   SNDK
Position:   Accumulate

What goes up must come down: That is certainly what happened to Sandisk (SNDK). The stock more than doubled with a move above 60 and then came down hard with a gap and close below 50 in November. Even though the decline did not form a classic corrective pattern, the actual retracement is normal as the stock retraced around 50% of its prior advance. In addition, the stock found support from the October low and managed to consolidate over the last few weeks (Figure 1).

FIGURE 1: SANDISK. SNDK more than doubled with a move above 60 and then came down hard with a gap and close below 50 in November.
Graphic provided by: MetaStock.
Graphic provided by: MS QuoteCenter.
 
Since October, a head & shoulders pattern has formed with neckline support at 45-46. The left shoulder formed in early October, the head in early November, and the right shoulder over the last few weeks. This bearish reversal pattern requires confirmation, and this would require a move below 45. Until confirmed, this pattern represents a consolidation and the stock could still go either way.

While a neckline break would clearly be bearish, a breakout above the right shoulder high and relative strength index (RSI) breakout would be bullish. The right shoulder is basically a consolidation with support at 45-46 and resistance at 53. A break of this consolidation will offer a good directional clue on the future of SNDK. In addition, I will clue in on a 20-period RSI. This indicator held above 50 during the entire advance. The indicator is currently below 50 and has yet to recover from the November decline. A break back above 50 would put momentum back with the bulls.



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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Date: 12/20/05Rank: 5Comment: 
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