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MOMENTUM


Momentum Sours At Children's Place

04/11/07 09:07:13 AM
by Arthur Hill

Children's Place formed a triangle over the last few months, and the stock now looks poised for a breakdown and continuation lower.

Security:   PLCE
Position:   Sell

Children's Place (PLCE) is part of the retail industry group and consumer discretionary sector. As such, it is sensitive to consumer spending and economic fluctuations, not to mention children's fads. The stock declined sharply from November 2006 to January 2007 and then formed a triangle consolidation (Figure 1). This sharp decline to the low 50s created an oversold condition, and the triangle worked off this condition. Note that the relative strength index (RSI) moved below 30 twice in January 2007.

FIGURE 1: PLCE, DAILY. The stock declined sharply from November 2006 to January 2007 and then formed a triangle consolidation.
Graphic provided by: Telechart 2007.
 
The previous decline is clearly bearish, and this gives the triangle a bearish bias. It is a rest within the trend created by the decline. There were two gaps and surges within the triangle, but there was no follow-through and the stock pulled back after a few days (blue rectangles). These failed rallies show just how weak the bulls are, and a move below triangle support would signal a continuation of the prior decline.

A close look at the triangle shows that a breakdown is already in the works. The decline over the last few weeks is testing the lower triangle trendline. In addition, there is a lot of support in the low 50s from the January and March lows. Despite this support, momentum is turning down again as the moving average convergence/divergence (MACD) moved into negative territory and below its signal line. This is a bearish momentum signal, and I would expect a support break as long as the MACD remains in negative territory. See Figure 2.

FIGURE 2: PLCE, DAILY. Despite support in the low 50s from the January and March lows, momentum is turning down again as the MACD moved into negative territory and below its signal line.
Graphic provided by: Telechart 2007.
 
The triangle is as yet unconfirmed, and a break below the March low would signal a continuation lower. The downside target is around 45. I estimated this target by measuring the width of the triangle at its widest points (~8 points) and subtracting this from the break point.



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: 04/11/07Rank: 4Comment: 
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