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WEDGE FORMATIONS


Hewlett-Packard Hits Resistance

12/12/08 08:44:49 AM
by Arthur Hill

After an oversold bounce the last few weeks, Hewlett-Packard is meeting resistance near a key moving average and an ominous chart pattern is taking shape.

Security:   HPQ
Position:   Hold

Figure 1 shows Hewlett-Packard (HPQ) with daily candlesticks over the last five months. The stock declined sharply from September to November and then bounced back to the falling 50-day moving average. Note that the 50-day is also below the 200-day and both are falling. This means the bigger trend is clearly down.

FIGURE 1: HPQ, DAILY. The stock declined sharply from September to November 2008 and then bounced back to the falling 50-day moving average.
Graphic provided by: TeleChart2007.
 
After a gap up on December 8 (Monday), the stock again challenged resistance and the 50-day line. This is a big test. A break above resistance would open the door to the next resistance area around 42–43. This second resistance stems from broken support and the 200-day line.

Figure 2 shows HPQ with 60-minute bars and a rising wedge pattern taking shape. These patterns are typical for corrective rallies. The advance also retraced around 62% of the prior decline. The wedge is still rising as long as the lower trendline and December low hold. A move below these two would reverse the short-term uptrend and signal a continuation of the bigger downtrend.

FIGURE 2: HPQ, HOURLY. Note the rising wedge pattern taking shape.
Graphic provided by: TeleChart2007.
 
The bottom indicator window shows the moving average convergence/divergence (MACD) (24,52,18). These settings are double the normal MACD settings (12,26,9). I doubled the settings to smooth the indicator for 60-minute bars. The MACD is currently rising and above its signal line, which favors the bulls. A move below the signal line would provide the first sign of trouble and a move into negative territory would turn momentum bearish.



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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