|This multiyear weekly chart shows a double top being tested (Figure 1). After the first peak near $27, a trough line was established at $21. Five months later the second top was established. Those "early bird" traders who surmised a double top could be in the making would have been correct, as a move near $21 did transpire.|
|For a double top to officially be in, the trendline has to be broken to the downside with some conviction. Should this happen with a close below $21, then the double-top completion target becomes $15 or near it. This six-point move is equal to the distance between the peak and the trough as applied to the downside move.|
|FIGURE 1: STAPLES, WEEKLY. This chart shows Staples at an important juncture.|
|Graphic provided by: StockCharts.com.|
|By the looks of the current chart, I would be betting the other way, to a move back up to challenge the $27 peak. The double top will be rejected at the current position, the support being the combination of the trendline (previous low) and the ever-important 200-period exponential moving average (EMA). This moving average often acts as significant support or resistance and many a trader or technically minded fund manager watches this level for the signs of a bounce.|
|The indicators below the chart lend themselves to a bullish view going forward. The moving average convergence/divergence (MACD) is at a low level with an uptick possibly emerging. Note the histogram is showing positive divergence, hinting at a potential upswing. The relative strength index (RSI) appears to have found support at 30 while the stochastic oscillator is reverberating in an oversold zone.|
|Should this bullish view prevail, the first hurdle is nearby overhead resistance offered by the 20-period EMA. Success there could signal a serious drive north to challenge previous highs.|
However, another refusal at the 20-day EMA could drive the stock to once again test the support level between $21 and $22. Failure here could then bring the double-top completion target ($15) into play. Gentlemen, place your bets — $27 or $15?
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