Flextronics Surges Off Support

09/06/07 09:25:43 AM

by Arthur Hill

After a long-drawn-out consolidation, Flextronics broke resistance with a surge off support, and this breakout points to higher prices down the road.

Security: FLEX
Position: Buy

Let's start with the weekly chart for some perspective (Figure 1). Flextronics (FLEX) surged in the second half of 2006 and then corrected in the first half of 2007. This correction turned flat over the last five months with support around 10.7 and resistance around 11.8. This long-flat correction amounts to one big base and the pattern over the past year looks like a large wedge. The stock broke the upper trendline with a surge this week, and the move off this base looks strong.

FIGURE 1: FLEX, WEEKLY. Flextronics surged in the second half of 2006 and then corrected in the first half of 2007.

Graphic provided by: Telechart 2007.

The weekly MACD (five-week EMA less 35-week EMA) confirms the breakout. The moving average convergence/divergence (MACD) moved into negative territory with the sharp decline in February (red dotted line). This key momentum indicator poked its head into positive territory in mid-August and again this week. The break into positive territory turns momentum bullish, and this confirms the chart breakout.

Turning to the daily chart for some details, we can see that volume surged over the last three days and the accumulation–distribution line broke to new highs (Figure 2). The accumulation–distribution line traded flat in July and August before breaking to new highs in late August. This breakout shows strong buying pressure and confirms the price breakout. Confirmation can also be seen with expanding volume as new buyers come into the stock.

FIGURE 2: FLEX, DAILY. The volume surged over the last three days and the A-D line broke to new highs.

Graphic provided by: Telechart 2007.

Last but not least, this is the biggest five-day surge in over a year. This alone tells us that something is up. A sudden and sharp range expansion often signals the start of a new move, and I expect FLEX to move higher from here. The 2006 lows now mark key support and a move below these levels would negate the breakout.

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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Flextronics Surges Off Support

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