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VOLUME


CheckPoint Is Feeling The Heat

02/17/05 07:49:50 AM
by Arthur Hill

With the recent news that Microsoft will enter the market for security software, Checkpoint Software filled a gap and momentum turned negative.

Security:   CHKP
Position:   Sell

On the heels of a large reversal (gray oval), Checkpoint (CHKP) was a star performer from early October to mid-December. Things got a bit rough in early January, but the stock gapped higher and moved back above 25 in early February.

Even though this advance was positive, upside volume started to wane and a bearish consolidation pattern formed. There was a surge in volume on the gap, but volume quickly tapered off and was not impressive on the move above 25 (black arrow). The advance also formed a rising wedge (blue trendlines), and this is typical for bearish consolidations.

Figure 1: Checkpoint Software. With the bulk of the evidence bearish, it is time to consider a downside target.
Graphic provided by: MetaStock.
Graphic provided by: Reuters Data.
 
The warnings signs were building and the high volume decline below 23.5 set the stage for further weakness. The stock could not muster strong volume on the advance, but managed to trade above average volume on the decline. This shows a serious increase in selling pressure. In addition, the decline broke the lower trendline of the rising wedge, exceeded the January 28th low and filled the gap. These bearish developments are further confirmed by the moving average convergence/divergence (MACD) moving into negative territory (red arrow) and turning momentum clearly bearish.

With the bulk of the evidence bearish, it is time to consider a downside target. There is support around 20 from broken resistance and a 62% retracement of the October to December advance. There is also a gap zone between 18 and 20 that could act as support. Taking the middle, my downside target is 19.



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
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Date: 02/17/05Rank: 5Comment: 
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