XMSR Satellite Radio Holdings Launching Off Bottom
12/21/06 02:38:13 PMby Gary Grosschadl After falling out of a near-$40 orbit early in 2005, this stock cratered down to $10 in the summer of 2006. Now it looks like another launch is under way.
Security: XMSR Position: Buy
Figure 1, a weekly chart of XMSR, shows a bottom attempt off two bottom hammer candlesticks from July and October 2006. Note the long decline of this stock while under the 20-day exponential moving average (EMA) resistance line. In early November, this resistance line was broken for the first time since the long decline began. This illustrates the principle of previous resistance becoming future support. As long as this 20-period EMA holds support, a trend change is in effect.
The three indicators below the price chart aptly foretell the coming rise off the second bottom hammer. Each of these indicators showed a positive divergence to price action. As the stock touched another bottom in November, these indicators went the other way and kept rising, hinting at a coming rise in the stock price. The moving average convergence/divergence (MACD) also showed an early buy signal with its bullish cross after the initial bottom. Note the Chaikin money flow (CMF) indicator shifted from bearish selling power to bullish buying power.
A target zone is surmised in the range between the 200-day EMA (currently 21.20) and $24. The 200-period EMA is an overhead resistance line that was previously respected with a shooting star candlestick last April. The $24 mark was the top of the previous bear rally.
In the longer term, should the stock successfully break the overhead 200-day EMA resistance (this may take several attempts), then a larger upleg could develop. This could signal a strong change in trend as stocks above the 200-period EMA (in any time frame) generally attract more bulls to the buy side.
Independent Canadian equities trader and technical analyst based in Peterborough Ontario, Canada.