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BREAKOUTS


Taiwan iShares Back At Crossroads

02/15/08 12:49:54 PM
by Chaitali Mohile

Taiwan iShares is tangling around the resistance area -- which direction should it move now?


Security:   EWT
Position:   N/A

The cup-with-handle breakout failed and the Taiwan iShares entered in significant downtrend for quite some time. The cup with handle is a continuation pattern where the uptrend pauses, trades lower, and ultimately continues in an upward direction on completion of the pattern. The breakout should have rallied the security much higher, precisely 2.5 points above the breakout level (17.25 - 14.75 = 2.5 + 17.25 = 19.75), with 19.75 the measured estimated level. The volume was not so enthusiastic to pull up the stock at target level and thus was dragged below. The breakout failed and a new downtrend was born. See Figure 1.

FIGURE 1: EWT, DAILY. The cup-with-handle breakout failed, giving a major trend reversal indication, and thereafter the EWT was engulfed by a bearish trend. The breakout going upward would be the perfect path from the crossroad.
Graphic provided by: StockCharts.com.
 
The support of the 200-day moving average was turned off, with a gap down powering the bears. Till then, EWT had a difficult trading session with lower lows and lower highs; after a gap down within a few sessions, EWT successfully established support around 13.50 levels. With this support, EWT was thrusting a 50-day moving average resistance after bearish moving average crossover. The downward-sloping trendline and a trendline at the support area forms an ascending triangle, so now the question is whether the breakout would occur now, or if EWT would continue forming a lower high till the range is narrowed further.

Earlier, the two DIs (positive and negative directional index) had moved closer, with the possibility of a downtrend changed to an uptrend. But the trend indicator surprised traders, and both DIs parted, leaving the downtrend intact. Similar conditions are appearing now; both the DIs are likely to collide. If history is not repeated, then a new beginning can be expected. EWT may enter in a new uptrend, with the other two indicators, the moving average convergence/divergence (MACD) (12,26,9) and the stochastic (14,3,3), showing some bullish bias.

Earlier, the MACD (12,26,9) was highly negative with large volatility that increased bearish pressure on the stock. And the stochastic (14,3,3) found it difficult to sustain above the 50 level, with eventually the lower high and higher low forming a symmetrical triangle. The stochastic movement is narrowed and indicates almost a breakout above the upper trendline. So this again extends positive notes bringing in buying pressure.

The stock is likely to be at a crossroad, deciding whether to be in a new uptrend or to remain under bearish control.



Chaitali Mohile

Active trader in the Indian stock markets since 2003 and a full-time writer. Trading is largely based upon technical analysis.

Company: Independent
Address: C1/3 Parth Indraprasth Towers. Vastrapur
Ahmedabad, Guj 380015
E-mail address: chaitalimohile@yahoo.co.in

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Date: 02/18/08Rank: 4Comment: 
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