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MOVING AVERAGES


Texas Instruments Turned Back At Key Moving Average

02/27/06 08:38:57 AM
by Arthur Hill

Texas Instruments is dragging the semiconductors sector lower with a break below a key moving average.

Security:   TXN
Position:   Sell

The 50-day simple moving average (SMA) and 200-day SMA are perhaps the two most popular moving averages. The 200-day SMA captures the long-term trend and the 50-day SMA captures the medium-term trend. These moving averages act as support in an uptrend and resistance in a downtrend. In addition, long-term trend signals are generated when the 50-day SMA crosses above or below the 200-day SMA.

FIGURE 1: TEXAS INSTRUMENTS. TXN met resistance at the 50-day SMA (red) with a harami (red arrow) in mid-February.
Graphic provided by: MetaStock.
Graphic provided by: MS Quotecenter.
 
In the Texas Instruments (TXN) price chart (Figure 1), the stock met resistance at the 50-day SMA (red line) with a harami (red arrow) in mid-February. TXN broke the 50-day SMA in January (gray circle), and this indicator offered resistance in February. The harami is a bearish candlestick reversal that requires confirmation. The drop below 30 confirms the harami and reinforces resistance at 32. In addition, the February advance formed a rising flag and the break below the lower trendline is bearish. The next support level is the October low around 27–27.5.

The stock broke below the 200-day SMA, but the 50-day SMA remains above the 200-day SMA. It looked as if the 200-day SMA would hold with the long white candlestick and surge above 31 on February 16 (red arrow). However, the stock soon peaked and broke back below this key long-term moving average. This is bearish and the 50-day SMA is also headed for a bout with the 200-day SMA. When the 50-day SMA moves below the 200-day SMA, it is referred to as a dead cross. Such a cross would be the final straw for the bulls and turn the long-term trend bearish.



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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