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GAPS


National Semiconductor Is Accelerating

06/14/07 01:23:42 PM
by Chaitali Mohile

National Semiconductor Co. appears to be waiting for sector support.

Security:   NSM
Position:   N/A

Many times, a gap breakout cracks strong resistance and turns the level into support. The price momentum on daily charts of National Semiconductor Co. (NSM) shows high volatility that may be due to the lack of volume or the two divergences on its relative strength index (RSI)(14). The stock price moved higher and then dipped toward its 50-day moving average support. But the gap breakout with heavy volume flew over all hurdles and previous high resistance was transformed into strong support. A one-point gap breakout should be traded like a large gap -- that is, after consolidation or while the price comes back to its low pivot. See Figure 1.

FIGURE 1: NSM, DAILY. A gap up breakout should be traded only upon completing consolidation or when prices retrace to its low pivot.
Graphic provided by: StockCharts.com.
 
The moving average convergence/divergence (MACD)(12, 26, 9 ) gave a bullish crossover and headed up with its zero line support. The relative strength index (RSI)(14) is 68 with a gap breakout in price, indicating a coming bullish rally. Both indicators give a positive signal for long position breakout. Now, after analyzing daily charts, let's check out the weekly chart too. See Figure 2.

FIGURE 2: NSM, WEEKLY. The price is near its 52-week highs. Huge buying opportunities can be seen if this resistance gets violated along with sector support.
Graphic provided by: StockCharts.com.
 
The weekly chart shows the strong resistance of the previous high. To cross such resistance along with encouraging volume, sector support is also important. Figure 2 shows all positive possibilities for violating this resistance, but I could see the stock accelerating in a strong bullish rally ahead. Figure 2 indicates upside strength in RSI(14) levels. The MACD (12, 26, 9 ) is positive as well. So what is NSM waiting for?

I would recommend traders to wait for sector support to come in before entering any long position on National Semiconductor Co.



Chaitali Mohile

Active trader in the Indian stock markets since 2003 and a full-time writer. Trading is largely based upon technical analysis.

Company: Independent
Address: C1/3 Parth Indraprasth Towers. Vastrapur
Ahmedabad, Guj 380015
E-mail address: chaitalimohile@yahoo.co.in

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