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Meredith Corporation: In A Bearish Trend?

12/18/13 03:39:06 PM
by Chaitali Mohile

Meredith Corp. rallied to its 52-week high, consolidated, and went through a bearish breakout. Could a downtrend be developing?

Security:   MDP
Position:   Sell

After a rounded-bottom breakout rally, Meredith Corp (MDP) has been consolidating for over a month (Figure 1). The stock moved between $51 and $53. Think of a bullish consolidation as a time for the stock to pause until market participants decide to move it on some defined direction. As you can see from the chart in Figure 1, prices broke below the support of the consolidation range and the 50-day moving average (MA), which is an indication of a major trend reversal. Could this be the beginning of a bearish trend?

FIGURE 1: MDP, DAILY. The stock violated the lower trendline and the 50-day MA support.
Graphic provided by:
The descending relative strength index (RSI)(14) has slipped below the 50 levels, indicating more downside for MDP. The moving average convergence/divergence (MACD)(12,26,9) underwent a bearish crossover during the consolidation phase of the price rally. Eventually, the momentum oscillator began declining toward the zero line in Figure 1. The average directional index (ADX)(14) is suggesting a developing downtrend. Hence, it is likely the bearish breakout will continue to increase the selling pressure on MDP.

FIGURE 2: MDP, WEEKLY. The narrow gap between the two converging trendline of the rising wedge suggests that the bearish breakout is underway.
Graphic provided by:
A long-term bullish rally on the weekly time frame in Figure 2 has formed a rising wedge, which is a bearish reversal pattern. The RSI(14) has been moving between the 50 and 70 levels during the upward price action. The ADX(14) has reached high levels, and the tangled MACD line and trigger line indicate high volatility in the bullish rally. All these indicate a tapering of the bullish rally.

The rising wedge of MDP looks like it is ready to undergo a bearish breakout. However, traders should wait for the bearish signals from the indicators before initiating short positions. The 50-day MA is the major support for the potential bearish rally. Therefore, traders can consider this support as the target for their short positions.

Currently, all three indicators are at bullish levels. Therefore, the downward breakout of the rising wedge pattern should be confirmed by the bearish signs of the indicators. MDP has reached its 52-week highs so it is likely that price will go through a short-term bearish rally.

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
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