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Oracle Hits Support Zone

02/08/08 10:08:51 AM
by Arthur Hill

Oracle declined to a support zone and became oversold. The short-term trend is down, but traders should watch for a bounce of support and a potential reversal.

Security:   ORCL
Position:   Hold

The price chart shows Oracle (ORCL) with a support zone around 18.5-19 that extends back to April. The stock touched this support zone in August 2007, November 2007, and now February 2008. In between support bounces, the stock hit resistance around 23 in October and again in late December. Since August, the stock has been locked in a trading range bound by 18.5 and 23.5. See Figure 1.

FIGURE 1: ORCL. Oracle shows a support zone around 18.50 to 19 that extends back to April.
Graphic provided by: MetaStock.
 
Trading ranges favor oscillators for trading. Because it is confined between zero and 100, the stochastic oscillator is good for showing overbought and oversold readings. The price oscillator uses the moving average and is good to identify actual turns. The stochastic oscillator became oversold with a move below 20. While this tells us to expect a bounce, the price oscillator is still trending lower and below its signal line. I would consider the stock oversold and weak as long as the price oscillator moves lower. Look for a break above a 3 to turn this oscillator up and anticipate a bottom.

FIGURE 2: ORCL. The stock has been trending lower since early January and gapped three days ago.
Graphic provided by: MetaStock.
 
Turning back to the price chart, the stock has been trending lower since early January and gapped three days ago. Even though support is at hand, the gap remains unfilled and we have yet to see a breakout. Look for a move above 20.2 to fill the gap and break the trendline. This would reinforce support and reverse the six-week slide. See Figure 2.



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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