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DOUBLE BOTTOMS


Seeing Double At Xerox

12/10/07 02:10:42 PM
by Arthur Hill

Xerox successfully tested its August low in November, and a double bottom is taking shape. Strong upside volume points to a breakout.

Security:   XRX
Position:   Accumulate

Figure 1 shows weekly prices for Xerox (XRX) and extends back to July 2003. The stock met resistance around $15.68 in early 2004 and in early 2006. XRX then broke resistance with a strong advance in 2006–07. This breakout was bullish, and broken resistance turned into support.

FIGURE 1: XRX, WEEKLY. This chart extends back to July 2003. The stock met resistance around $15.68 in early 2004.
Graphic provided by: TeleChart2007.
 
In addition to support from broken resistance, there is support around $15.68 from the August 2003 trendline. The stock bounced off support in August and again in November. These bounces affirm support and we can now look at the daily chart for a potential breakout.

Figure 2, the daily chart, shows a sharp decline and then two lows around $15.50. These relatively equal lows form a double bottom and the intermittent high marks resistance. A break above this high would confirm the double bottom and target further strength toward the next resistance area around 20.

FIGURE 2: XRX, DAILY. Note the sharp decline and then two lows around $15.50.
Graphic provided by: TeleChart2007.
 
A positive divergence in the moving average convergence/divergence (MACD) and strong upside volume favor a breakout. The surge off support over the last four weeks occurred with good upside volume. Note that many of the black volume bars (up days) are above average. This shows strong buying pressure. While the stock tested its August low, the MACD formed a higher low and positive divergence. This showed less downside momentum and the MACD moved into positive territory over the last two weeks. Momentum is bullish and this also favors an upside 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.

Title: Editor
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E-mail address: arthurh@tdtrader.com

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Date: 12/12/07Rank: 5Comment: 
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