Mind The Gap At Ameristar Casinos

05/22/06 01:29:45 PM

by Arthur Hill

After a laborious advance over the last six months, Ameristar Casinos broke down in a big way, signaling a continuation of the prior decline.

Security: ASCA
Position: Sell

First, let's look at the structure of the advance prior to the breakdown. The stock, Ameristar Casinos (ASCA), declined below 20 in October 2005 and then rose to around 27 by early May 2006. The advance formed a rising wedge and retraced 62% of the prior decline. Both the pattern and the retracement are typical for corrective advances. As such, I view this move as a countertrend rally within a larger downtrend. See Figure 1.

FIGURE 1: AMERISTAR CASINOS. The advance of ASCA formed a rising wedge and retraced 62% of the prior decline.

Graphic provided by: MetaStock.

Graphic provided by: MS QuoteCenter.

There are support breaks and then there are support breaks. ASCO broke support in a big way. The stock met resistance just above 25 at least three times in the last three months and broke support with a big gap down. The stock firmed immediately after the gap and then moved lower the last five days. The post-gap continuation solidified a break below the 200-day simple moving average (SMA) and 50-day SMA. The combination of a trendline break, lower low, and key moving average break is quite bearish.

Expanding volume further confirms the breakdown and a move below 20 is expected over the next few weeks and months. Volume surged when the stock gapped down and again when the stock continued down (gray ovals). With the May reaction high, I can now draw a trendline extending up from the August high. A lower trendline has been drawn parallel and this extends to around 16. This lower trendline extension is the downside target.

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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Mind The Gap At Ameristar Casinos

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