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Liberty Global May Tumble Lower

01/30/06 08:11:56 AM
by Gary Grosschadl

As Liberty Global Inc. breaks important support, downside targets are being considered for this NASDAQ 100 company.

Security:   LBTYA
Position:   Sell

Liberty Global is one of the largest cable television operators outside the United States, principally in Europe, Asia, and Latin America.

Figure 1 shows a rising channel that is considered to be a bullish continuation pattern. Prices tend to move along the channel until the trend is broken, and this weekly chart illustrates the danger of assuming a trend change on a sudden trendline break. In this case, some bulls were trapped as the move reversed back inside the pattern. A more prudent and safer strategy would be to buy on a bounce off the support line, currently at 17.5.

FIGURE 1: LIBERTY GLOBAL, WEEKLY. Here's a support break in the middle of a pattern.
Graphic provided by:
Several indicators also show reason to doubt the breakout attempt. The volume on the break was not convincing as, ideally, it should be noticeably larger. In addition, several indicators below the chart show negative divergences to price action. Downlegs often appear when such indicators diverge from price action. The moving average convergence/divergence (MACD), the relative strength index (RSI), and the Chaikin money flow (MFI) all show this divergent action.

Note the current support break of the ever-important 200-period exponential moving average (EMA). As this line has a history of "respect," further downside is likely. Two downside targets are indicated: 17.5 is a possible channel support, and failing that, the previous support level of 15. A bounce at either of these levels would draw bulls in. The lower target could come into play as a "spring" setup. As the top limit sprang outside the channel, a similar occurrence could be reflected at the bottom channel.

Gary Grosschadl

Independent Canadian equities trader and technical analyst based in Peterborough
Ontario, Canada.

E-mail address:

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Date: 01/30/06Rank: 5Comment: 

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