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GAPS


RadioShack Gaps Higher

01/16/07 12:00:06 PM
by Arthur Hill

A gap and breakout on big volume point to higher prices for RadioShack.

Security:   RSH
Position:   Accumulate

On the daily chart (Figure 1), RadioShack (RSH) gapped down in October and then firmed around 17 the rest of the year. There was an attempt to rally in mid-November, but the October gap put up resistance and this rally failed. The subsequent decline carried RSH below the October–November lows in late December and the stock deteriorated in the year-end.

FIGURE 1: RADIOSHACK, DAILY. RSH gapped down in October and then firmed around 17 for the rest of the year.
Graphic provided by: Telechart 2007.
 
Weakness suddenly changed into strength with a high-volume gap in early January. RSH gapped up and closed above the November high. Moreover, volume was above the level traded when the stock gapped down in October. The gap held for a whole week and should be considered bullish as long as it holds. A move back below 16.5 would fill the gap and completely negate this breakout.

FIGURE 2: RADIOSHACK, WEEKLY. RSH broke the trendline extending down from February 2005 and moved above 20 in the third quarter of 2006.
Graphic provided by: Telechart 2007.
 
Let's turn to the weekly chart for an upside target (Figure 2). RSH broke the trendline extending down from February 2005 and moved above 20 in the third quarter of 2006. The pullback in the fourth quarter of 2006 looks like a correction and the gap/breakout signals a continuation of the prior advance. As a continuation move, it would be expected to surpass the October high and the recent low should hold.

The next resistance zone is in the mid-20s and this is the upside target. The stock broke support at 26 and this level now turns into resistance (red line). There is also a consolidation around 25 (gray oval) and this level marks resistance. Taken together, the initial upside target is around 25, and I would expect either a pullback or a consolidation when (or if) RSH reaches this level.



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: 01/16/07Rank: 4Comment: 
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