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WEDGE FORMATIONS


Dueling Chart Patterns For Pride International

09/14/06 08:24:57 AM
by Arthur Hill

Two potentially conflicting chart patterns are battling it out for the future of Pride International.

Security:   PDE
Position:   Hold

Figure 1 shows a double top that was confirmed with a break below key support at 29. The stock formed two equal highs around 37 and an intermittent low around 29 in March. The May–August decline broke the March low to confirm the double top, and the downside target is to around 21 (37 - 29 = 8; 29 - 8 = 21).

FIGURE 1: PRIDE INTERNATIONAL. Here's a double top for PDE that was confirmed with a break below support at 29.
Graphic provided by: MetaStock.
 
Turning to the daily chart (Figure 2), Pride International (PDE) formed a falling wedge that covers the decline from May to August. The falling wedge is a potentially bullish pattern, but not until there is a breakout to end the fall. PDE, which continues to form lower lows and lower highs over the last few months, must break this sequence to reverse the downtrend.

FIGURE 2: PRIDE INTERNATIONAL, DAILY. PDE formed a falling wedge that covers the decline from May to August.
Graphic provided by: MetaStock.
 
Broken support at 29 is the first level to watch. The double-top support break at 29 turns into resistance, and a break above this level would challenge the bearish signal from the double top. The last reaction high formed in late July and early August around 30. PDE would have to clear 30.15 to forge a higher high and start reversing the falling wedge.

Early signs of strength are promising. The stock surged in early September with above-average volume on September 1, 5, and 7 (green box). This move broke the upper wedge trendline and the stock pulled back below 27. This pullback affirms the resistance zone around 29–30 and a break above 30.15 would be enough to call for a trend reversal. As long as this level holds, I would respect the double-top support break and the downtrend from the falling wedge.



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.

Title: Editor
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Date: 09/15/06Rank: 4Comment: 
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