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Oracle Looks Exhausted

02/04/05 08:18:59 AM
by Arthur Hill

Oracle advanced more than 40% from late August to mid-December, but a filled gap and waning money flow show an exhausted stock.

Security:   ORCL
Position:   Sell

Gaps come in all shapes and sizes. The first gap for Oracle (ORCL) occurred in September 2004 and should be considered a breakaway gap. The gap formed after a support test in early September and the stock held the gap without any problems. Moreover, the advance continued and the stock raced from 11 to 14.87 over the next few months. As its name implies, the stock foreshadows a breakaway move.

The advance in the August-December period was capped by an exhaustion gap. These occur after an extended move as the stock gaps in the direction of the underlying trend, but fails to hold the gap and fills it with a countertrend move. In this case, Oracle was in an uptrend and gapped higher on December 13. The December 13th high was never exceeded, and the stock filled the gap with a decline over the next few weeks. This makes it an exhaustion gap and suggests that the current uptrend is, well, exhausted.

Figure 1: Oracle. ORCL advanced more than 40% from late August to mid-December, but a filled gap and waning money flow show an exhausted stock.
Graphic provided by: MetaStock.
Graphic provided by: Reuters Data.
Even though the stock recovered in January 2005, the pattern at work is not promising. First, the Chaikin money flow turned negative in early January and remains in negative territory. This indicates distribution over the last few weeks and increases the odds of further weakness. Second, a rising flag formed over the last few weeks, which are typically bearish consolidations. A move below the lower trendline and the January 24th low (13.2) would signal a continuation lower.

Arthur Hill

Arthur Hill is currently editor of, 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 and the main contributor to the ChartSchool.

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Date: 02/05/05Rank: 4Comment: 

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