Best Buy Making a Break For It

03/25/03 10:55:02 AM

by Arthur Hill

Best Buy is tracing out an ascending triangle on the daily chart, but the weekly chart suggests that this could just be a reaction rally within a larger downtrend.

Security: BBY
Position: N/A

After a sharp advance from 17.5 to 30, Best Buy (BBY) retraced a Fibonacci 62% with a decline to the low 20s (blue arrow). The stock then went on to form an ascending triangle over the next few weeks with resistance around 30. The three highs (gray arrows) do not exactly match up, but the essence of the ascending triangle is present. The higher lows (late December to mid-March) indicate buying pressure at successively higher levels (shallower dips). The relative equal highs depict overhead support around 30.

The ascending triangle is a bullish continuation pattern but requires confirmation with an upside breakout. A move above 30, ideally confirmed with expanding volume, would be bullish and project further strength to around 37-38. For projections, the width of the pattern at its widest point (7.5) is added to the resistance breakout (30).

Figure 1: Daily chart for BBY.

Graphic provided by: MetaStock.

While the daily chart shows promise, the weekly chart suggests that the whole advance may be just a larger retracement of an even larger decline. BBY declined from 53.75 to 17 and the advance thus far has retraced a Fibonacci 38%. With the ascending triangle brewing, a breakout at 30 would suggest a move to the next retracement level. A 50% retracement would carry to 35 and a 62% retracement to around 40. Inbetween, the ascending triangle projection and resistance from the July highs reside at 38. A reaction high between 35 and 40 would open the door to a possible rising wedge, but that possibility will be addressed when and if it materializes.

Figure 2: Weekly chart for BBY.

Arthur Hill

Arthur Hill is currently editor of TDTrader.com, a website specializing in trading strategies, sector/industry specific breadth stats and overall technical analysis. He passed the Society of Technical Analysts (STA London) diploma exam with distinction is a Certified Financial Technician (CFTe). Prior to TD Trader, he was the Chief Technical Analyst for Stockcharts.com and the main contributor to the ChartSchool.

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Best Buy Making a Break For It

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