Another Rectangle Break For Texas Industries

11/24/08 09:14:01 AM

by Arthur Hill

Texas Industries broke rectangle support for the second time in six months, signaling yet another continuation of the long-term downtrend.

Security: TXI
Position: Sell

Figure 1 shows daily bars over the last six months. Texas Industries (TXI) declined sharply in May–June and then formed a rectangle consolidation in July–August, two months down and two months flat. The stock broke rectangle support in September and declined more than 50%.

FIGURE 1: TXI, DAILY. Texas Industries declined sharply in May and June and then formed a rectangle consolidation in July and August.

Graphic provided by: TeleChart2007.

After becoming oversold in early October, the stock consolidated and formed another rectangle. This one lasted just over a month, and the stock recently broke support to signal yet another continuation lower. Using traditional technical analysis, the expected decline would be equal to the height of the pattern. However, the first rectangle break/decline proves we should take these targets with a grain of salt. A bear market is under way and this means overshoots to the downside are more likely.

Figure 2 shows candlesticks over the last four months. Note that TXI broke support with high volume. Selling pressure is increasing, just as it did in late September (blue arrow). The pattern extends from 35 to 23 for a height of 12. Should this project unfold, the downside target would be around 11.

FIGURE 2: TXI, DAILY. TXI broke support with high volume. Selling pressure is increasing, just as it did in late September (blue arrow).

Graphic provided by: TeleChart2007.

The bottom indicator shows the moving average convergence/divergence (MACD) moving below its signal line and into negative territory over the last few days. The MACD is firmly bearish as long as it remains below its signal line. With bearish momentum and a support break, TXI looks to move lower over the next few weeks.

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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RECTANGLES

Another Rectangle Break For Texas Industries

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