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TECHNICAL ANALYSIS


DECK In Intermediate Downtrend

03/23/12 11:38:27 AM
by Chaitali Mohile

The long-term uptrend of Deckers Outdoor Corp. has entered an intermediate downtrend.

Security:   DECK
Position:   N/A

Since 2003, Deckers Outdoor Corp. (DECK) has been undergoing a healthy bullish rally. According to the monthly time frame, the price movement of DECK and the 50-day moving average (MA) moved parallel in an upward direction. The MA support was challenged only in 2006 and 2009. A minor descent within the strong rally is considered to be a bullish sign, provided it establishes support at important levels. In Figure 1, the 50-day MA is the robust historical support. Whenever the rally was overheated, it retraced towards support. A bullish move initiated from the 50-day MA formed a new high.

We can see the relative strength index (RSI) (14) in Figure 1 plunged from an overbought region in 2006 as well as in 2009. Similarly, the average directional index (ADX) (14) turned highly overheated in those years. The full stochastic (14,3,3) that was overbought for a longer period also drifted to an oversold region, indicating a bearish momentum in the rally. Therefore, we can conclude that the short-term bearish rallies were the minor technical corrections in Figure 1.


FIGURE 1: DECK, MONTHLY
Graphic provided by: StockCharts.com.
 
DECK entered a similar technical situation in late 2011. An evening star candlestick pattern was formed at the peak of the rally near 120 levels. The technical indicators once again turned overheated, and hence, the candlestick formation in Figure 1 is confirmed as a bearish reversal. In addition, the RSI (14) is revealing a negative divergence. So we can say that the bearish signals in 2012 are stronger than earlier. The ADX (14) has slipped down to 31 levels from an overheated level above 40. The selling pressure (red line) of ADX (14) is likely to take over the buying pressure (green line).

The stochastic oscillator is ready to move below 20 levels, indicating some more room for the bearish rally. DECK has moved to 68 levels; the 50-day MA continues to be the major support for the current downside rally. Thus, the stock has limited downside. These small corrective rallies on the monthly time charts show major footprints on the intraday chart. Trend change can be noticed on the daily time frame chart in Figure 2.


FIGURE 2: DECK, DAILY
Graphic provided by: StockCharts.com.
 
Figure 2 of DECK is completely bearish. There are many gap downs, indicating significant bearish pressure. The 50-day MA has tumbled below the 200-day moving average (MA), suggesting a bearish crossover. The 200-day MA support is breached by a gap down. Later, DECK formed higher lows under the newly formed MA resistance. During this process, a downtrend was developed in Figure 2. Earlier, the trend was directionless with equal buying and selling pressure. However, as the price moved below long-term resistance, the stock entered a fresh bearish trend. But the new trend failed to sustain in the developing trend level (20), and as a result, the ADX line once again dropped below 20.

The descending 50-day MA support was violated by a huge gap down. The long red candles show significant bearish strength in the rally. Since the RSI (14) and stochastic oscillator moved flat following the vertical fall, DECK consolidated in the narrow range of 70 and 65. The bearish candles dragged the stock in an intermediate downtrend. The consolidation at the bottom of the rally is likely to form a bearish flag & pennant formation. After a bearish breakout, the stock would resume the existing descending rally. Therefore, DECK is ready to lose few more points.

Traders cannot enter any fresh positions at this point because DECK has lost 60 points from the new high and has limited downside.

To conclude, the minor bearish rallies of DECK in Figure 1 developed an intermediate downtrend on the intraday chart in Figure 2.




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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