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MACD


Waning Money Flow For Hewlett Packard

11/16/06 11:21:10 AM
by Arthur Hill

Momentum and money flow failed to confirm the latest high in Hewlett Packard, and trouble could be brewing.

Security:   HPQ
Position:   Hold

On the price chart (Figure 1), Hewlett Packard (HPQ) remains in an uptrend and has yet to actually break down. The stock is up 35% since July and remains above the July trendline. In addition, the stock just recorded a new high above 40 and remains above its last reaction low. Turning bearish would be a top picking exercise, but potential warning signs are on the horizon and here's what to look for.

A potential negative divergence in the moving average convergence/divergence (MACD) is the first warning sign. While the stock moved above 40 and to a new high, the MACD remained below its October high and a negative divergence is brewing. However, the MACD remains above its signal line and has yet to turn down. The indicator would need to turn down and cross below this signal line to confirm the negative divergence.

FIGURE 1: HEWLETT PACKARD. HPQ is on an uptrend, and has yet to break down. But warning signs are on the horizon.
Graphic provided by: MetaStock.
 
Relative weakness in the Chaikin money flow (CMF) is the second warning sign. HPQ moved from 38 to 40.85 and the CMF barely budged. Money flow was positive throughout October and then weakened in November. There was a brief dip into negative territory, but money flow moved back into positive territory this week. A move below -10% in money flow would be bearish.

The third warning sign is a bearish engulfing pattern. This bearish candlestick pattern forms when the open is above the prior close and the close is below the prior open. As its name suggests, the black candlestick engulfs the prior white candlestick, marking a one-day reversal. These candlestick pattern require confirmation, and further weakness with another down day would do the trick.



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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E-mail address: arthurh@tdtrader.com

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Date: 11/16/06Rank: 4Comment: 
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