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Tuning In To XM Satellite Radio05/31/07 08:42:35 AM
by Gary Grosschadl
Has a bottom finally shown up to produce a tradable bounce?
|The year 2007 has not been kind to this stock, since XM Satellite Radio (XMSR) has declined from $17.50 to near $10. There are several hints that a tradable bounce may be occurring, however (Figure 1).|
|The first hint is a move above the often telling 20-day moving average (in this case, the exponential moving average). I refer to stocks in a decline that stay under this moving average as being in "failure mode" — bear rallies that fail at this overhead resistance. For the first time in several months, this stock has finally closed above the 20-day EMA. This points to a possible bounce beyond its typical bear rallies of late.|
|FIGURE 1: XMSR, DAILY. This chart suggests a bottom bounce.|
|Graphic provided by: StockCharts.com.|
|As always, it is wise to look for collaborative evidence or signs. At the top of the chart, we see that there is a bullish crossing of the directional movement indicators (DIs). This points to a shift to bullish power (the green +DI). Below the chart, there is evidence of positive divergences via the moving average convergence/divergence indicator (MACD) and the relative strength index (RSI). When a stock makes new lows but indicators instead go the other way, a bounce is often in the works. Early action shows this to be the case. The stochastic indicator shows some upside room but is getting into an overbought area.|
|An upside target zone is shown by virtue of a trendline near $13.25 and an area of previous support and resistance near $14.25. The stock may have to first consolidate a little before hitting this target area, but the 20-day EMA must hold; otherwise, a potential double bottom could develop, meaning another bottoming downleg. Stay tuned to XMSR Satellite Radio for a clearer emerging signal.|
Independent Canadian equities trader and technical analyst based in Peterborough
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