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CANDLESTICK CHARTING


Internet HOLDRS Testing Support With Two Harami

05/02/06 08:33:50 AM
by Arthur Hill

Two bullish candlestick reversals show promise for the Internet HOLDRS, but these have yet to be confirmed, and momentum favors the bears.

Security:   HHH
Position:   Hold

The Internet HOLDRS (HHH) has been one of the weakest exchange traded funds (ETFs) in the market. While the Standard & Poor's 500 and NASDAQ both recorded multiyear highs in April, the Internet HOLDRS traded well below its January peak and at its lowest level since July. The stock got a big lift with a gap up on April 19, but this surge failed immediately with a gap down and move to support. The stock is now consolidating at support and I am watching the consolidation boundaries for the next move.

FIGURE 1: INTERNET HOLDRS, WEEKLY. HHH has been notably weak in recent days, but got a lift with a gap up in mid-April.
Graphic provided by: MetaStock.
Graphic provided by: MS QuoteCenter.
 
Two harami candlestick patterns formed last week (gray oval), as can be seen in Figure 1. The first formed with a long black candlestick and doji for a harami cross. The second formed with a white candlestick and smaller black candlestick. The second candlestick of the harami represents an inside day or miniconsolidation. It shows support, but these patterns require confirmation before they can be considered bullish. A move above 57 would break consolidation resistance and confirm the harami.

The relative strength index (RSI) confirms weakness in the stock. The RSI moved to oversold levels in February and March (red ovals). The second oversold reading led to a multiweek advance that carried RSI above 50. Despite subsequent forays above 50, RSI failed to hold above this key level for more than a few days; the 50 level acts as resistance in a downtrend and RSI must move back above 50 for momentum to be considered bullish. In fact, a move above 57 in the stock and 50 in RSI would trigger a nice bullish signal. As long as both hold, a support break and a move toward 50 are likely.



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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