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STOCHASTIC OSCILL


Petsmart Rolls Over At Resistance

06/19/08 08:59:36 AM
by Arthur Hill

After a weak rally to resistance, a key momentum indicator is rolling over and Petsmart looks poised to continue its downtrend.

Security:   PETM
Position:   Sell

Figure 1 shows weekly prices with the 40-week moving average, which is equivalent to the 200-day moving average (40 x 5 = 200). With this key moving average falling, the long-term trend is considered down. Petsmart (PETM) rallied from mid-March to mid-May and met resistance at this moving average. In addition, broken support around 25 turned into resistance in the vicinity of the moving average. The black candlesticks are starting to circle and resistance looks mighty stiff.

FIGURE 1: PETM, WEEKLY. With the 40-week moving average falling, the long-term trend appears to be down.
Graphic provided by: TeleChart2007.
 
On-balance volume (OBV) on the daily chart (Figure 2) offers some clues on the March–May advance. While the stock moved from 19 to 25, OBV wallowed near its lows and barely budged. This suggests that there was little buying pressure behind the move. The advance does not have a leg to stand on and looks vulnerable to failure.

Since hitting resistance, the stock consolidated with a triangle over the last four to five weeks. Watch this pattern for the next directional signal. A move above triangle resistance would be quite positive, but a move below triangle support would be bearish, especially with a long-term downtrend under way.

FIGURE 2: PETM, DAILY. The on-balance volume offers some clues to the March–May advance.
Graphic provided by: TeleChart2007.
 
The bottom indicator window shows the stochastic oscillator (100,10,10). This may seem like a long time frame for the indicator, but long time frames filter out the noise to provide a directional bias. A bullish bias exists when the indicator is above its signal line and a bearish bias when the indicator is below. The stochastic oscillator rolled over and moved below its signal line the last few weeks for a bearish bias. This increases the chances of a downside triangle break.



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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Address: Willem Geetsstraat 17
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E-mail address: arthurh@tdtrader.com

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Date: 06/19/08Rank: 3Comment: 
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