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MOVING AVERAGES


Pulte Fails At The 200-Day Average

04/29/08 08:56:10 AM
by Arthur Hill

Pulte Homes (PHM) failed to break long-term resistance, and a recent downturn in momentum opens the door to lower prices.

Security:   PHM
Position:   Sell

FIGURE 1: PULTE, DAILY. The stock surged to a key moving average level in late January, but was turned back at various attempts in the next two months.
Graphic provided by: TeleChart2007.
 
Figure 1 shows Pulte (PHM) with the 200-day moving average (blue). Pulte surged to this key moving average in late January but was turned back on the first attempt. Despite subsequent breakout attempts in February and March, the stock failed each time and never broke through. Long-term resistance held.

The red line shows the 20-day moving average of the 200-day moving average. Yes, it is a moving average of a moving average. This simple technique shows when the 200-day is trending lower and when it turns up. The 200-day is moving lower when it remains below its 20-day moving average -- such as now. A worthy upturn would forge a crossover and suggest that the tide (trend) was turning.

FIGURE 2: PULTE, DAILY. The inverse head & shoulders pattern is potentially bullish, but requires confirmation with a break above resistance.
Graphic provided by: TeleChart2007.
 
Figure 2 shows PHM in 2008 with an inverse head & shoulders pattern. This pattern is potentially bullish but requires confirmation with a break above resistance. PHM did not break resistance and did not confirm the pattern. Instead, PHM declined to the January trendline and broke the late March low. While there is potential support from the January trendline, the failure and support break are bearish.

Momentum is also bearish. After surging in late January, the moving average convergence/divergence (MACD) formed a lower high in April and this showed waning upside momentum. A bearish signal line crossover followed this lower high and the indicator moved into negative territory over the last few days. Momentum is now bearish and it would take a move above the signal line to suggest otherwise.



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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