Starwood Breaks Triangle Support

09/16/08 08:25:04 AM

by Arthur Hill

Starwood Hotels recently broke triangle support to signal a continuation of the long-term downtrend.

Security: HOT
Position: Sell

Figure 1 shows daily candlesticks with a triangle formation over the last two months. Starwood Hotels (HOT) declined sharply from May to July and then consolidated with this triangle. Even though these are neutral patterns, the presence of a prior decline and overall downtrend establish a bearish bias. In other words, a continuation of the bigger downtrend is more likely than an upside reversal.

FIGURE 1: HOT, DAILY. Starwood Hotels declined sharply from May to July and then consolidated.

Graphic provided by: TeleChart2007.

Despite a bearish bias, a triangle break is needed for an actual signal. A break above triangle resistance would be bullish, while a break below triangle support would be bearish. With a weak open on September 16, HOT is breaking triangle support even as I write this. In addition, downside volume has been outpacing upside volume. Should this activity hold, I would expect a continuation of the May–July decline.

Figure 2 shows weekly candlesticks for a downside projection. The stock declined 15 points in the last leg down. After this decline, the triangle consolidation formed. A continuation lower would project another 15 points from the triangle high (42). This makes the downside target around 27 over the next few months. The first 15-point decline took 10 weeks.

FIGURE 2: HOT, WEEKLY. Here, the stock declined 15 points in the last leg down.

Graphic provided by: TeleChart2007.

With HOT breaking triangle support, resistance from the September highs becomes key. A recovery and break above these highs would put the bulls back in the driver's seat.

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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Starwood Breaks Triangle Support

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