A Rectangle Top For Apollo

02/28/08 11:52:18 AM

by Arthur Hill

Apollo Group broke rectangle support with high volume, and the long-term outlook is now bearish.

Security: APOL
Position: Sell

The rectangle top for Apollo Group (APOL) formed from October 2007 to February 2008. The stock met resistance just above 80 three times in the last five months. The November and January lows established support 67–70. Based on support at 67 and resistance at 82, this rectangle represents a large trading range. The bulls were holding up as long as the range held. However, the stock broke range support with a sharp decline and this broke the bull's back. See Figure 1.

Volume surged as the stock broke support and this validated the break. The stock traded above average volume when it declined over the last two weeks (red bars). This shows intense selling pressure that is unlikely to dissipate overnight. The bottom indicator window shows on-balance volume (OBV), which moved below its August low. This indicator also confirms intense selling pressure. Volume often precedes price and the new low in this indicator is bearish.

FIGURE 1: APOL, DAILY. This stock broke range support with a sharp decline and this broke the bull's back.

Graphic provided by: TeleChart2007.

The downside target is around 53. There is support in this area from the August–September lows. In addition, the length of the rectangle can be subtracted from the support break for a target. The rectangle extends from 67 to 82 (15 points). The support break was at 67 and this targets a move to 52. Broken support at 67 turns into the first resistance level to watch.

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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A Rectangle Top For Apollo

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