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VOLUME INDICATOR


ANN Breaks Wedge Support

06/26/08 10:08:57 AM
by Arthur Hill

Ann Taylor Stores rallied the first five months of the year, but the advance formed a bearish wedge and a recent support break ended the rally.

Security:   ANN
Position:   Sell

Figure 1 shows Ann Taylor (ANN) with weekly candlesticks over the last 18 months. The stock broke triangle support late last year and declined sharply at the end of the year. The advance in 2008 retraced 50%–62% of the October–December decline and met resistance near the 50-week and 200-week moving averages. This is a stiff resistance zone and the stock ultimately failed to break through.

FIGURE 1: ANN, WEEKLY. ANN broke triangle support late last year and declined sharply at the end of the year.
Graphic provided by: TeleChart2007.
 
With weakness over the last six weeks, ANN broke wedge support and this calls for a continuation of the bigger downtrend. Rising wedges are typically bearish continuation patterns that represent a countertrend advance after a decline. After forming a lower high in May, the wedge break targets a move to at least the December–January lows. This is the first target and first support area.

Turning to the daily chart (Figure 2), we can see a failed gap and a consolidation. ANN gapped higher in mid-May and then filled this gap with a decline the next four weeks. The inability to follow through after the gap is suspect. This gap has been filled, but the stock established support around 24 in June as a consolidation this month. Look for a break below consolidation support to trigger the next bearish signal.

FIGURE 2: ANN, DAILY. More recently, ANN gapped higher in mid-May and then filled this gap with a decline over the next four years.
Graphic provided by: TeleChart2007.
 
OBV and expanding downside volume point to a support break. The stock surged with good volume in mid-May, but volume on down days has outpaced volume on up days since then. More effort is going into selling than buying. This is also reflected in the on-balance volume (OBV) indicator, which moved to new lows this month. These bearish volume patterns increase the chances of a support 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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