|First, let's check the weekly chart for some perspective. VOD broke double bottom resistance in November 2002 (red arrow) and advanced until January 2004. The whole move formed a large rising wedge and the stock broke the lower trendline in May 2004. The trendline break may seem negative, but the decline could be just a correction of the prior advance.|
Weekly chart for Vodafone.
The other pattern at work is a falling price channel (blue trendlines). The decline from January 2004 to July 2004 formed a falling price channel and retraced 62% of the prior advance (18.10 to 27.75). Both the pattern and the retracement are typical for corrections in an ongoing uptrend. Further strength with a move above the upper trendline and prior high (25.90) would signal a continuation higher and project a move to new highs.
|Figure 2: Vodafone daily chart|
|Graphic provided by: MetaStock.|
|For clues on breakout potential, traders should analyze the most recent advance. The July to September 2004 advance retraced 62% of the prior decline with a rising price channel (magenta trendlines). As noted, both the retracement and the pattern are typical for corrective moves, and this argues for caution. Further, this advance occurred on relatively low volume. There was a volume surge in late July, but volume has been mostly below average throughout the advance. In addition, two of the three highest volume days over the last two months occurred when the stock declined (gray arrows). As long as the lower trendline and mid-September low hold (23), the bulls get the benefit of the doubt. However, a move below 23 would signal a continuation lower and at least a test of the July low.|
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