|A falling trend can be thought of as a falling resistance level -- the bears are in control and are pushing prices lower.|
|FIGURE 1: MAGNA INTL. Is a further downtrend in store for MGA?|
|Graphic provided by: StockCharts.com.|
|In this scenario, prices try to penetrate the trendline but fail. This is well supported by such indicators used as average directional movement index (ADX) and the slow stochastic.|
Figure 1 shows a 14-day average directional Indicator (ADX), which is hovering around 20-25 levels. Until it crosses 30, there is no positive sign. In addition, the slow stochastic is at 90 or so, indicating the stock is in the highly overbought zone. A correction cannot be ruled out at this point.
|We used a two-year period daily graph to show that the stock is trending south, as all support levels are breached. But to my understanding, it has already bottomed out at the 60 level, and an inverse head & shoulder formation can be seen. We will have to see if it will try to test the 80 level, which is a neckline for the inverse head & shoulder. Once this neckline is breached, we might see a target equal to the distance of the head from the neckline, which is $80-$60=$20. So it would be best not to enter the stock till the time it breaches the 80 level; it may be best to enter the stock at 82 for a $100 target.|
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