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Gap Off Support Bodes Well For EMC

08/18/06 08:48:24 AM
by Arthur Hill

After a selling climax in July, EMC Corp. (EMC) surged off support with a gap, calling for higher prices.

Security:   EMC
Position:   Buy

EMC established support between 9 and 10 over the last three years. First, the stock consolidated between 9 and 11 in June, July, and August 2003. Second, the stock bounced off support between 9 and 10 in August 2004. Third, the stock hit support between 9 and 10 in July and August this year (2006). These three occurrences in the last four years solidify support around 9-10 for EMC. See Figure 1.

FIGURE 1: EMC. EMC established support between 9 and 10 over the last three years after some consolidation and bouncing.
Graphic provided by: MetaStock.
 
Selling pressure was intense in June and even more intense in July. Weekly volume edged higher in June and shot to multiyear highs in July as the stock fell. Volume spiked higher at the end of June and again in mid-July. These spikes were accompanied with a sharp decline and the combination created a selling climax. A selling climax flushed out all the weak hands and paved the way for a low.

Evidence of support and a selling climax is not enough to turn bullish. For that, we need some sort of upside signal and the stock obliged with a gap up. First, the stock firmed and edged higher on above-average volume last week. The stock then followed through this week with above-average volume again. The last volume bar only accounts for four days because this chart only goes to Thursday (August 17). I found the gap and high-volume bounce off support bullish and would look for higher prices as long as the July low held. In addition, notice that the stochastic oscillator (20,5,5) is turning up from oversold levels and momentum is improving after being oversold for weeks.



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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