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CHART ANALYSIS


Comcast Undergoes Weak Breakout

11/30/10 12:10:29 PM
by Chaitali Mohile

The weak trend is not the new phenomenon for Comcast Corp. The fresh breakout rally is likely to get affected due to the trend factor.



Security:   CMCSA
Position:   N/A

Comcast Corp. (CMCSA) initiated a relief rally in 2009. The stock formed higher highs and lows to recover from the previous losses. CMCSA reached its long-term moving average (MA) 200-day resistance in one year. In Figure 1, we can see the stock plunged after every intermediate high. The higher highs and lows is a bullish indication. Therefore, CMCSA gradually hit the 200-day MA resistance. The rally could have been steady if an uptrend developed, but the average directional index (ADX) (14) was drifting below 20 levels as the price rally was surging. In addition, the selling and buying pressure indicated by the positive (+DI) and negative (-DI) directional index were tangled throughout the rally. Thus, the trend was weak and the converging +DI and -DI poured volatility in the price rally. The higher lows of the full stochastic (14,3,3) and the ascending moving average convergence/divergence (MACD) (12,26,9) showed significant bullish momentum in the rally. This helped CMCSA surge in a volatile situation.

FIGURE 1: CMCSA, WEEKLY
Graphic provided by: StockCharts.com.
 
However, CMCSA failed to breach the 200-day MA resistance and turned sideways, forming a converging triangle. The triangle can be considered to be a flag & pennant or a symmetrical triangle in Figure 1. Since the consolidation followed the previous advance rally, the flag & pennant is a bullish continuation pattern. The major difference between the two patterns is their breakout directions. The symmetrical triangle can undergo breakout in any directional: upward or downward, whereas the bullish continuation pattern always breaches upward and resumes the prior advance rally. In Figure 1, the pattern has broken upward by forming three strong bullish candles (yellow block). Before breaking upward, the stock formed a small hammer candlestick pattern at the bottom of the triangle, highlighting the possibility of a fresh bullish breakout. Accordingly, the pattern breached upward and the weak ADX (14) climbed above the 10 levels with huge buying pressure (+DI) in Figure 1.

During the breakout, CMCSA formed the three white soldiers -- a bullish reversal candlestick pattern. In Figure 1 the second and third candles in the yellow block have opened near the previous session's high and all the three candles have closed near the intraday high. The 200-day MA resistance was violated along with the pattern breakout; however, the uptrend again failed to develop. Although the ADX (14) in Figure 1 has reached 15 levels, it has to move to 20 for the uptrend to develop. As a result, the bullish breakout rally is consolidating in a very narrow descending range of 20 and 21. An overbought stochastic oscillator is tipped downward and is likely to plunge few levels within the bullish area. Similarly, the volatile MACD (12,26,9) has sustained in positive territory. This shows that the rally is likely to undergo the volatile bearish session in near future.

The positive MACD (12,26,9) and the overbought stochastic suggest that CMCSA could sustain the 200-day MA support. Thus, the weak trend would be the main culprit for spoiling the party.



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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