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Symantec's Triple Top Danger

02/27/03 08:54:13 AM
by Gary Grosschadl

Several warning signs point to the possibility of a triple top challenge.

Security:   SYMC
Position:   Sell

Triple tops are reversal patterns that form after three relatively equally spaced highs are made. They generally take less time to form than triple bottoms, that being three months. The pattern is not considered valid until trough support is broken. By measurement, if the pattern fulfills to ideal completion, this can lead to a downside target equal to the distance between the trough and top. Volume should decline as the triple top forms and this is apparent in the chart below.

There are clues hinting at some downside coming. The directional movement indicator is quite weak with ADX at 12.2 (under 20 is considered weak). This is often the case when the stock is in a non-trending or range-bound phase. For this reason it is best to use the stochastic oscillator to show reversals at overbought and oversold levels. As the stochastic indicator shows, a downleg may soon start as it heads above the 80 level. The implication here is that the stock will head down to the trough level again, ending up around the $43.50 level.

Graphic provided by:
Other clues come from negative divergences (to price action) from MACD (moving average convergence/divergence) and the RSI (relative strength index). These indicators failed to move higher as the stock hit its previous peaks. This brings some doubt that the stock will be able to move higher.

There are two possible trading strategies going forward. The aggressive short-term trader could play this perceived weakness for a stochastic downleg until the trough line test is reached. This will likely coincide with a stochastic reversal off its oversold level (around 20) as before. The longer term and perhaps the more prudent trader can wait for this trough test to see if support breaks here. If it does, then the triple top is valid and a short position (with a suitable stop) could be taken for the further downside move to around $40.

Gary Grosschadl

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

E-mail address:

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Date: 02/28/03Rank: 5Comment: 

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