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by Arthur Hill
The Bollinger Bands are narrowing on Sandisk, and traders should prepare for a directional move as volatility contracts.
Position: N/A
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.
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BOLLINGER BANDS
The Noose Tightens On Sandisk
06/19/07 11:23:55 AMby Arthur Hill
The Bollinger Bands are narrowing on Sandisk, and traders should prepare for a directional move as volatility contracts.
Position: N/A
| On the daily chart (Figure 1), Sandisk (SNDK) surged to 45 in March and then embarked on a long consolidation phase. The surge lasted less than four weeks and the current consolidation is entering its 12th week. Note that the Bollinger Bands expanded as the stock moved above 40 and then contracted as the trading range matured. These bands reflect decreasing volatility, and this usually precedes a volatility expansion. It is like the calm before storm. |
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| FIGURE 1: SANDISK, DAILY. SNDK surged to 45 in March and then embarked on a long consolidation phase. |
| Graphic provided by: MetaStock. |
| |
| Bollinger Bands and trading ranges tell us to prepare for a move, but they do not provide many hints on direction. Traders can look at volume indicators for evidence of accumulation or distribution, but price action is the ultimate arbiter and the direction of the breakout will trigger the next signal. |
| Turning to the weekly chart (Figure 2), a move above 46 would break range resistance and the 40-week exponential moving average (EMA). This moving average is equivalent to the 200-day moving average (40 x 5 = 200). Such a breakout would be bullish and target a move toward the next resistance level, which is around 60. |
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| FIGURE 2: SANDISK, WEEKLY. A move above 46 would break range resistance and the 40-week EMA. |
| Graphic provided by: MetaStock. |
| |
| A move below consolidation support would be bearish. The stock is trading below its 40-week EMA and the long-term trend is arguably down. With a long-term downtrend present, traders should not rule out a downside break. A move below 41 would be bearish and the first target would be support from the March lows. |
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.
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Date: 06/21/07Rank: 4Comment:
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