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HEAD & SHOULDERS


Rambus Ready To Rumble

10/27/04 11:05:07 AM
by Arthur Hill

Rambus shows good buying pressure and looks poised to confirm an important reversal pattern.

Security:   RMBS
Position:   Buy

Looking at the weekly chart of Rambus (RMBS) for some perspective, we can see a large advance followed by a falling price channel. The stock returned all the way to support from the February/March (2003) lows and then bounced with a sharp advance in September. The advance broke above the upper trendline and the 2004 downtrend is showing signs of a reversal.


Figure 1: Rambus weekly chart


Turning to the daily chart, the stock broke falling wedge resistance with a sharp advance to around 18. This breakout signals a continuation of the September move and projects an advance above the July high. This is quite important, because a move above the July high would trigger an even more bullish pattern.

Figure 2: Rambus daily chart
Graphic provided by: MetaStock.
Graphic provided by: Reuters Data.
 
An inverse head-and-shoulders pattern formed over the last five months. The left shoulder formed in July, the head in early September, and the right shoulder in mid-October. These are bullish reversal patterns that are confirmed with a move above neckline resistance. Instead of drawing the neckline with a signal line, I opted for a neckline resistance zone (17.45 to 18.25). This will ensure that a breakout exceeds the July high.

Volume expanded as the stock advanced in September and October (gray arrows). This shows that buying interest is increasing and further validates the pattern. A move above 18.25 would fully confirm the inverse head-and-shoulders formation and project a move to around 24.



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.

Title: Editor
Company: TDTrader.com
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E-mail address: arthurh@tdtrader.com

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