P&F Breakdown For Diamond OffShore

03/21/08 09:33:45 AM

by Arthur Hill

After consolidating for a few weeks, Diamond Offshore broke support to trigger a point & figure sell signal.

Security: DO
Position: Sell

Point & figure charts make it easy to establish support and resistance levels. After peaking around 148 in December (green arrow), Diamond Offshore (DO) declined sharply in January (Figure 1). The bounce after this decline retraced 50% of the prior decline and met resistance around 126. Resistance is clear because the stock failed at this level four times.

Despite falling at resistance, DO established support around 118 with three bounces. Basically, the stock consolidated between 118 and 126 with columns of Xs and Os in March (pink lines). This consolidation held the key to the next signal. A break above resistance would be bullish and a break below support would be bearish.

FIGURE 1: DO, DAILY. After peaking around 148 in December (green arrow), Diamond Offshore declined sharply in January.

Graphic provided by: StockCharts.com.

With a sharp decline over the last few days, DO broke support to trigger a quadruple-bottom breakdown. In addition, the stock broke the bullish support line rising from the February lows. This breakdown is bearish and support from the January low marks the first target around 102.

FIGURE 2: DO. Here's Diamond OffShore with on-balance volume as the pink line.

Graphic provided by: StockCharts.com.

Figure 2 shows DO with on-balance volume (OBV) as the pink line. While the stock consolidated in March, OBV moved lower and the indicator is poised to record a new low. This shows distribution during the March consolidation and the recent breakdown shows increased selling pressure.

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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