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Internet HOLDRS Reaches Resistance

12/07/06 01:54:59 PM
by Arthur Hill

The Internet HOLDRS rebounded sharply over the last four months, but the rally is running into resistance and the exchange traded fund is still lagging the NASDAQ.

Security:   HHH
Position:   Hold

Figure 1 shows the Internet HOLDRS (HHH) from November 2005 to the present (about one year). The stock declined from January to July and then rallied from August to November. The exchange traded fund (ETF) gained more than 20% in the last four months and the rally looks impressive. However, the price relative, which compares the performance of HHH to the NASDAQ, failed to exceed its September high and the advance is not all that impressive on a relative basis.

FIGURE 1: HHH, MONTHLY. The Internet HOLDRS declined from January to July and then rallied from August to November.
Graphic provided by: MetaStock.
In addition to less than impressive relative strength, the HHH is running into stiff resistance around 55–57. This resistance zone stems from broken support and a 50% retracement of the January–July decline. The stock established support at 55 in March and broke this level in mid-May. There was a strong bounce in late May, but broken support turned into resistance and the stock was turned back. Prices remembered this resistance level and the stock was once again turned back at 55 in late November.

FIGURE 2: HHH, DAILY. Despite resistance and lagging performance, the four-month trend is still up.
Graphic provided by: MetaStock.
Despite resistance and lagging performance, the four-month trend on the daily chart is still up. Figure 2 shows HHH and the rally from early August. The stock broke resistance at 50 and this is the current signal. Broken resistance turns into support and this level is key to the current uptrend. In addition, the early August trendline marks support around 50–51. HHH is quite volatile and entitled to a pullback. However, 50 is about as far as I would let this pullback extend. A break below 50 would reverse the four-month uptrend and call for a continuation of the January–July decline. Ouch.

Arthur Hill

Arthur Hill is currently editor of, 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 and the main contributor to the ChartSchool.

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Date: 12/08/06Rank: 3Comment: 

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