TQNT Moves Sideways

10/11/10 01:47:08 PM

by Chaitali Mohile

The candlestick patterns on TriQuint Semiconductor shows the road map of its future rally.

Security: TQNT
Position: N/A

The moving average (MA) breakout of TriQuint Semiconductor (TQNT) lacked the strength to move it higher. The breakout rally moved with the support of the 50- and 200-day MA support for about two months (mid-July to mid-September). As soon as the weak trend surged above 20 levels with huge buying pressure, a fresh bullish trend was developed in Figure 1. We can see that the average directional index (ADX) (14) sprang from a weaker section to the developing one. The positive directional index (+DI) also moved along with the ADX line, developing the new uptrend.

Eventually, the stock surged from $7.04 and continued to move higher. However, TQNT formed a doji candlestick after every bullish candle in Figure 1. The doji candlesticks reflect uncertainty, but here, it reflected consolidation as the stock made new intraday highs in every alternate session. During the intraday consolidation, TQNT gathered the strength to move higher. Gradually, the stock made a 52-week high and formed a hanging man candlestick pattern in Figure 1. The hanging man candlestick pattern is a bearish reversal formation, indicating the end of the current upward rally. Usually, the hanging man initiates a fresh bearish rally. However, we can see in Figure 1 a pair of hanging man candlesticks have turned the rally into a sideways consolation.

FIGURE 1: TQNT, DAILY. An overheated uptrend, the overbought RSI (14), and the hanging man candlestick turned the bullish rally into a sideways consolidation.

Graphic provided by: StockCharts.com.

The ADX (14) either plunges or moves horizontally in an overheated level, indicating the possibility of a trend reversal. If the indicator plunges, a fresh trend is developed, and if the oscillator moves within the overheated level, the existing trend moves sideways and creates more space for the rally. The relative strength index (RSI) (14) is overbought and overheated, while the ADX (14) in Figure 1 is moving horizontally above the 40 level. This shows significant strength in the bullish trend, and as a result, TQNT is consolidating, even though the hanging man candlestick pattern has appeared on the daily frame in Figure 1. Due to the sideways price action, the current trend has stopped surging upward. Therefore, the stock is ready to form a bullish flag & pennant formation at its new high. But traders have to be careful while trading TQNT, as the indicators are very bullish. The bullish breakout of the consolidation and the movement of the indicators must be observed.

FIGURE 2: TQNT, WEEKLY. We can see three different candlestick formations on the weekly time frame.

Graphic provided by: StockCharts.com.

Figure 2 shows two bearish reversal candlestick patterns that affected the bullish rally and a bullish reversal candlestick pattern -- three white soldiers. In 2009, an evening star candlestick pattern terminated the previous bullish rally and initiated a fresh downtrend for TQNT. The large red candle in the box reflects bearish pressure; however, the long-term moving average that is the 200-day MA support was sustained. The bullish crossover of the two moving averages extended support and prevented additional damage. Thereafter, the rally that followed the 50-day MA direction formed a lower high at $8.5. At this level, a bearish engulfing candlestick was formed and began an intermediate downside rally. TQNT marginally breached the 50-day MA support. The ADX (14) showed an unsteady trend (see the blue box) in Figure 2. After reestablishing the MA support, TQNT surged for the three consecutive weeks. During this journey, the three bullish candles formed a three white soldiers pattern. The ADX (14) is indicating a developing uptrend, confirming the candlestick formation. However, a negative divergence of the moving average convergence/divergence (MACD) (12,26,9) and the RSI (14) are not supporting the three white soldiers. Thus, the stock is likely to move sideways.

To conclude, candlestick patterns along with the reliable indicators can be one of the best combinations for traders to develop a road map for price movement.

Chaitali Mohile

Active trader in the Indian stock markets since 2003 and a full-time writer. Trading is largely based upon technical analysis.

Company:	Independent
Address:	C1/3 Parth Indraprasth Towers. Vastrapur
	Ahmedabad, Guj 380015
E-mail address:	chaitalimohile@yahoo.co.in
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TQNT Moves Sideways

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