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GAPS


Is Rambus Ready To Rumble?

10/12/06 08:41:49 AM
by Arthur Hill

With a momentum oscillator turning up and gap higher, Rambus appears set to continue the August advance.

Security:   RMBS
Position:   Accumulate

On the price chart (Figure 1), Rambus (RMBS) declined sharply from April to August then quickly reversed with a sharp rally in the second half of August. The rally featured high volume and carried the stock above 17.5 in early September. A consolidation period then unfolded and the stock broke out with a high-volume gap above 18. This high-volume breakout shows renewed interest and validates the move.

The consolidation is evident by the narrow price range over the last few weeks and the contracting Bollinger Bands. Note the Bollinger Bands also contracted in July and the sudden move to the lower band foreshadowed a sharp decline below 12.5 (red oval). The opposite is taking place now as prices surge to the upper band. The breakout targets a move to the 25–27 area or to resistance from the late June–early July highs. The October low at 16.7 becomes key support, and this is the level to watch for a failure.

FIGURE 1: RAMBUS. RMBS dropped from April to August before turning back up in late August.
Graphic provided by: StockCharts.com.
 
Momentum is also turning up. The moving average convergence/divergence (MACD) formed a positive divergence from late May to mid-August and moved into positive territory in September. This momentum oscillator pulled back over the last few weeks but held in positive territory. The MACD turned up yesterday but has yet to break above its signal line (red line). As long as the gap holds, I would expect the MACD to move back above its signal line and upside momentum to gather steam.



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.

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Date: 10/13/06Rank: 4Comment: 
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