TDW Returns To Broken Resistance

03/13/06 08:36:52 AM

by Arthur Hill

The recent decline in Tidewater looks like a correction back to the resistance breakout.

Security: TDW
Position: Accumulate

First, look at the big picture to establish the long-term trend. Tidewater stock (TDW) formed a large triangle from October to December and broke resistance with a big surge in January (Figure 1). This surge featured a gap and strong move above the October, November, and December highs. The breakout led to a new 52-week high, and the long-term trend is considered up.

FIGURE 1: TIDEWATER. TDW formed a triangle from October to December.

Graphic provided by: MetaStock.

Graphic provided by: MS Quotecenter.

The sharp advance created an overbought situation and a correction was needed to alleviate this situation. The stochastic oscillator moved above 80 (overbought) on January 9, 2006, and remained largely above 80 the rest of the month. As long as the stochastic oscillator remained above 80, the stock was both overbought and strong. The move below 80 started the correction process. As the stock declined in February and March, the stochastic oscillator moved below 20 twice and became oversold. The indicator is currently below 20 and the stock is considered oversold.

In addition to being oversold, the stock is near support and showing some signs of firmness. A key tenet of technical analysis is that broken resistance turns into support. There is a clear resistance zone around 48-50 and the stock declined to this area last week. A white candlestick formed on March 8 and a doji formed on March 10. These show firmness and traders should be on guard for a reversal. A move above upper wedge trendline would be positive and further strength above the late February high would open the door to more new highs for the stock.

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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TDW Returns To Broken Resistance

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