|This is yet another example of the many pullback tests (to the 200-day EMA resistance) we are seeing in the markets these days. Many have been failing these tests with some big exceptions (gold index XAU).|
Figure 1: Daily chart of Magna Intl.
Looking back on the daily chart, it shows trouble brewing when in July the 20-day EMA crashed through the much longer term 200-day EMA (always a bad sign). Then after a series of higher lows (red trendline) the stock shows signs of a trend reversal as it managed to rise above its 20-day EMA resistance. This set up the pullback test to the ever potent 200-day EMA barrier. Brief failure there set up yet another test and this one also failed in the form of a double top. This was a swift decline as traders seen the danger here and in the overall indices. By measurement the double top correction could find initial support 5-7 points below the 95 support trough, as a guideline.
An interesting note are the confirming patterns (double top and head and shoulders) also detected in the displayed indicators MACD and stochastics
|Figure 2: Weekly chart of Magna Intl.|
|Graphic provided by: stockcharts.com.|
|The candle pattern is a harami cross hinting at a lessening of bearish power but the large volume spike could indicate otherwise so confirmation of the next day's candle/price action is required. A move down validates the trendline violation making it more bearish. Checking the weekly chart there are three possible lower trendline supports - 90/85/78 should a downleg continue. Look for a bounce there. Failure at the 85 level on the weekly chart is arguably a slanted head and shoulder failure, something to watch for if conditions worsen now or in the future.|
|There is not much doubt that this stock like many others will take its cue from movement in the overall indices. A rally in the big indices will likely result in another assault towards the 200-day EMA. More downward pressure will lead us towards those trendline supports as outlined.|
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