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HEAD & SHOULDERS


Maxim Breaks Neckline Resistance

07/11/07 09:40:47 AM
by Arthur Hill

Maxim Integrated Products formed a large head & shoulders pattern in the first six months of the year, and the July breakout opens the door to higher prices.

Security:   MXIM
Position:   Accumulate

Maxim Integrated Products (MXIM) is part of the semiconductor industry and the technology sector. Techs have been leading the market the last few months and semis have been leading techs. This is a powerful combination, and the recent breakout in MXIM makes this stock one of the market leaders.

FIGURE 1: MAXIM, WEEKLY. The stock bottomed around 26 in August and advanced to about 34 in January.
Graphic provided by: Telechart 2007.
 
Before looking at the head & shoulders pattern, let's take a look at the weekly chart to put this pattern into perspective (Figure 1). The stock bottomed around 26 in August and advanced to around 34 in January (see box). The stock met resistance around 34 quite a few times over the last six months, and this is clearly the level to beat. A breakout would open the door to the next resistance area around 38-43.

When we turn to the daily chart (Figure 2), we see that a clear head & shoulders pattern evolved over the last six months. The right shoulder formed in February, the head in April, and the left shoulder in May. Neckline resistance resides at 34 and the stock broke above this level with a surge over the last few weeks. The pattern measures 5 points (29 to 34) from the neckline to the head and this is added to the neckline breakout for a target (34 + 5 = 39). This target is also in the resistance zone on the weekly chart.

FIGURE 2: MAXIM, DAILY. A clear head & shoulders pattern evolved over the last six months.
Graphic provided by: Telechart 2007.
 
A golden cross and good volume enhance this breakout and increase the chances of success. The 50-day simple moving average (SMA) moved above the 200-day SMA in January (blue circle) and held above for the last six months. Prices are moving in the right direction and this is medium-term bullish. The surge over the last few weeks occurred on above-average volume. The blue box shows that upside volume has been consistently above the 200-day moving average (above average), and this shows increased buying pressure.



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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