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CHART ANALYSIS


Magna International Twice Fails Pullback Test

09/24/02 11:12:53 AM
by Gary Grosschadl

This Canadian international auto parts giant can't beat the important and telling 200-day EMA barrier.

Security:   MGA.to
Position:   N/A

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.



Gary Grosschadl

Independent Canadian equities trader and technical analyst based in Peterborough
Ontario, Canada.

Website: www.whatsonsale.ca/financial.html
E-mail address: gwg7@sympatico.ca

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