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VeriSign Hints At A Breakout

05/01/07 08:30:12 AM
by Gary Grosschadl

VeriSign Inc., which is the encryption and authentication leader on the Internet (which most people recognize as the small padlock icon in their web browser when shopping online), has edged past a breakout point.

Security:   VRSN
Position:   Buy

Figure 1, this weekly chart, shows an ascending triangle breakout with a close just above the upper trendline. Breakouts ideally are marked with exceptional volume, but that has not occurred yet, so the move may be suspect. The next few trading sessions may shed some light regarding if it will be a breakout with any gusto. Note this also relates to a move above the 200-period moving average, giving added significance.

The measurement for an upside move for a formation like this comes from the widest part of the triangle, as applied to the upside break past the upper trendline. The widest part of the triangle yields seven points (27 - 20). This gives an upside target of 34 (27 + 7). This lies between two previous highs on this chart, roughly 33 - 35.

FIGURE 1: VRSN, WEEKLY. Verisign poised to go higher on this chart.
Graphic provided by:
Several indicators are worthy of mention. The directional movement indicator (DMI) at the top of the chart shows a bullish stance with the average directional index (ADX) above 20 and the positive directional indicator (+DI) atop the bearish counterpart of -DI. Ideally, what we need to see here is the ADX to continue higher via an upslope.

The first thing to note on the lower indicators is the bullish positive divergence that was apparent at the bottom hammer candlestick. Both the moving average convergence/divergence (MACD) and the Chaikin money flow (CMF) indicators moved higher as the stock price hit a new low. This often foretells a coming upleg or reversal. Both indicators remain in bullish territory and have upside room.

In summary, a breakout is possibly under way, but more volume is needed to sustain any upward thrust or the move could wilt and retest the triangle's lower trendline or the nearby 20-day EMA. Note how the two moving averages also trace out an ascending triangle pattern.

Gary Grosschadl

Independent Canadian equities trader and technical analyst based in Peterborough
Ontario, Canada.

E-mail address:

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