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CHANNEL LINES


Liberty Global Faces Key Resistance

04/28/06 10:14:59 AM
by Gary Grosschadl

Now under the pressure of two key moving averages, LBTYA looks vulnerable to further downside.

Security:   LBTYA
Position:   Hold

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

The weekly chart shown in Figure 1 shows a bullish rising channel, but two key moving averages (the 20- and 200-period exponential) paint a bleaker picture. When stocks come off a peak and then fall below their 20-period moving average (MA), I consider the possibility that a failure pattern may develop. This is a downleg characterized by a series of bear rallies failing at the 20-period MA. Do not trust the stock until it closes above this overhead resistance.

FIGURE 1: LIBERTY, WEEKLY. This chart hints that the bullish channel will have a downside test soon.
Graphic provided by: StockCharts.com.
 
What makes this more ominous is the fact that the stock is also under its key 200-period exponential moving average (EMA). Looking back on this chart, there is a history of multiple bounces off this line, leading me to conclude that once this line is violated, a change in trend may be under way.

We can also consider several indicators. At the top of the chart, we can see an overheated average directional movement index (ADX) line coming off a peak, which normally hints at a coming trend change. However, the directional movement indicators (DIs) have refused to cross after converging. This apparent failure to confirm the intended trend change (from bearish to bullish) hints at a renewal of bearish power. Below the chart, the MACD (moving average convergence/divergence) and the RSI (relative strength index) are not yet in agreement. The MACD shows a bullish cross of its signal line while the RSI is considered bearish, as it cannot rise above the key 50 level. They will eventually agree once the stock makes a more decisive move.


If LBTYA cannot close above its 200-day EMA, then at the very least, we can expect another test of the lower trendline, currently at $18.50. Should this fail, then two lower targets -- $15 and $11 -- come into play.



Gary Grosschadl

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

Website: www.whatsonsale.ca/financial.html
E-mail address: gwg7@sympatico.ca

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