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MOVING AVERAGES


Shuffle Master Deals A Bad Hand

02/08/06 09:06:08 AM
by Arthur Hill

A moving average break and relative weakness spell lower prices for Shuffle Master.

Security:   SHFL
Position:   Sell

Shuffle Master (SHFL) was a top performer from 2000 to 2004, but upside momentum started waning in 2005, and currently, the stock is breaking down in 2006. The stock established support near 24 with a reaction low in April 2005, and the stock bounced off this area throughout 2005 (Figure 1). A trading range evolved in 2005 and the stock formed a triangle from August to December (magenta trendlines). The stock managed to hold around 24 the last few months, and the 100-week simple moving average (SMA) confirms this support area.

FIGURE 1: SHUFFLE MASTER. SHFL established support near 24 with a reaction low in April 2005. A trading range evolved in 2005 and the stock formed a triangle from August to December (magenta trendlines).
Graphic provided by: MetaStock.
 
The stock held support at 24 again in January but broke below 23 in February. This move broke the 100-week SMA and the lower triangle trendline and forged a 52-week low. These are all bearish developments that call for lower prices over the coming months. The first downside target is around 18-19, a level marked by the August 2004 low. This support area is also confirmed by a 50-62% retracement of the 2003–04 advance.

In addition to the bearish chart signals, Shuffle Master also shows relative weakness. The top indicator plots the price relative (SHLF divided by the Standard & Poor's 500). The line rises when the stock outperforms the S&P 500 and falls when it underperforms. The stock has been underperforming since February 2005, and the price relative moved to a new low recently. Fund managers like to avoid relatively weak stocks, and poor relative strength bodes ill.



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
Company: TDTrader.com
Address: Willem Geetsstraat 17
Mechelen, B2800
Phone # for sales: 3215345465
Website: www.tdtrader.com
E-mail address: arthurh@tdtrader.com

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