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Are We Seeing a Bottom Hammer?

09/25/02 03:27:34 PM
by Gary Grosschadl

Since peaking in the mid-twenties, this stock has been free falling to multi-year lows. Now it is trying to hold its previous low -- a candlestick "bottom hammer" -- but will it stick ?

Security:   FMKT
Position:   N/A

Looking back to May 2002, we can see that FreeMarket's (FMKT) vicious decline began in earnest via the 20-day EMA crossing below the 200-day EMA. Note the volume spike that emphasized a turning point. Typical of a serious downtrend is the pattern of multiple failures at the overhead resistance from the 20-day EMA line. This is likely to remain a formidable resistance line as it also corresponds to the previous gap resistance line shown on the chart at the $5.70 area. Also note that, except for the occasional bear rally, the directional movement indicator at the top of the chart shows that sellers rule as long as -DI remains above +DI.

Graphic provided by:
A strong clue that support may fail at the $5 level is the bearish descending triangle formation. Volume correctly contracts as the triangle develops. The target price, should this pattern conclude to the downside, is found by measuring the widest distance of the pattern and subtracting it from the resistance breakout. This would be a drop below $5 and suggests a possible move down to $3. A surprise move up past the upper trendline around $6 would invalidate the bearish intent of this formation. A move below $5 would be attractive to short sellers.

Gary Grosschadl

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

E-mail address:

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