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BREAKOUTS


PMC-Sierra Surges Above Resistance

11/07/06 08:07:54 AM
by Arthur Hill

A high-volume breakout opens the door to higher prices for PMC-Sierra.

Security:   PMCS
Position:   Accumulate

PMC-Sierra (PMCS) has been quite volatile the last few months. The stock gapped down in July, recovered in August, gapped down in September, and recovered in October. The second gap-recover sequence was smaller, but the ability to recover after a gap down shows resilience.

The stock firmed after the late September gap and found support around the 50-day moving average (Figure 1, gray box). There was a tight consolidation for two to three weeks and then a surge to 7. The stock hit resistance at 7 for the fourth time in three months and consolidated into early November. As it turned out, 7 was the level to beat and PMCS broke through resistance with good volume this week.

FIGURE 1: PMC-SIERRA, DAILY. PMCS firmed after the late September gap and found support around the 50-day moving average (gray box).
Graphic provided by: TC2000.com.
Graphic provided by: Telechart 2007.
 
The pattern from mid-August to early November looks like an inverse head & shoulders. After an advance, an inverse head & shoulders is a continuation pattern. It also requires a break above neckline resistance for confirmation and volume plays an important role. The surge above 7 broke neckline resistance and volume was above average. In addition, note that the on-balance volume (OBV) broke above its October high.

High volume reinforces the breakout and the next resistance zone is around 9. This will be the upside target as long as the stock shows strength. A strong stock should hold its breakout and a move back below 7 would be negative. I still see a lot of support around 6, however, and would not turn bearish unless PMCS broke the October low (5.79).



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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