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Playing the Range On Sun Microsystems

06/03/05 07:44:36 AM
by Arthur Hill

Sun Microsystems has been range bound for almost two years and recently moved into a reversal zone.

Security:   SUNW
Position:   Hold

On the weekly chart (Figure 1), we can see that SUNW has been bound by support around 3 and resistance near 6 since April 2003. The pattern at work looks like a large rectangle or trading range. There have been six swings (three up and three down), and the current swing is down. Effective trading has required traders to buy near support and sell near resistance.

Figure 1: Sun Microsystems, weekly chart
Graphic provided by: MetaStock.
Graphic provided by: Reuters Data.
 
Even though support and resistance may be near, it usually pays to wait for some sort of reversal signal. On Figure 1, I drew trendlines, and the trendline breaks could be used for entries and exits. The stock recently broke above the blue trendline, extending down from December 2004, and a new upswing may be starting.

Turn to the daily chart (Figure 2) for some detail, and you will see the stock is consolidating just below 4. The stock surged on good volume in late April and then formed a flag over the next four to five weeks. Note that broken support turned into resistance at 4 and the stock would need to move above 4.1 to signal a continuation higher. This would complete the reversal off support and target a move back to resistance (6).

Figure 2: Sun Microsystems, daily chart
Graphic provided by: MetaStock.
Graphic provided by: Reuters Data.
 
Recent money flows show accumulation and increased buying pressure. Chaikin money flow turned positive and moved to its highest level since November 2004. Buying pressure is the strongest it's been all year. Even so, it is important to wait for confirmation from price action and look for a break to 4.1 for final confirmation.



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: 06/03/05Rank: 5Comment: 
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