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BOLLINGER BANDS


World Wrestling Gets A Squeeze

03/01/07 09:36:15 AM
by Arthur Hill

The Bollinger Bands are narrowing considerably for World Wrestling Entertainment, and this often leads to a breakout. But which way?

Security:   WWE
Position:   Hold

I always like to start with the weekly charts for some perspective. World Wrestling Entertainment (WWE) surged from June 2005 to June 2006 and then consolidated over the last nine months. Most of the gains are holding, but the stock has been stuck in a range for quite a while. As a result of this lower volatility, the Bollinger Bands have narrowed and the range is the tightest it has been in more than two years.

FIGURE 1: WWE, WEEKLY. This stock surged from June 2005 to June 2006 and then consolidated over the last nine months. Most of the gains are holding currently.
Graphic provided by: Telechart 2007.
 
Like price movements, volatility is also cyclical in nature. There are periods when volatility contracts and periods when volatility expands. The advance represented a period of expansion and the consolidation is a period of contraction. One follows the other and an expansion phase is likely to follow the current contraction phase. See Figure 1.

So we know to expect a volatility expansion and this means a directional move in prices. But which way? Bollinger Bands do not provide directional clues and we must now turn to price action and indicators.

WWE currently shows more weakness than strength, and this favors a decline. The stock is trading below the 50-day and 200-day moving averages, and the 50-day moving average is trading below the 200-day moving average (Figure 2). Support at 15.80 is holding for now, but a break would be bearish and target a decline to around 13.5–14.

FIGURE 2: WWE, DAILY. This stock has been range-bound in the last two months. A challenge to the June 2006 high may come around 18.5.
Graphic provided by: Telechart 2007.
 
The bulls have some hope as long as the stock holds support, but a breakout is needed to turn bullish hope into bullish reality. The stock has been range-bound the last two months. A break above the January high would also break the two moving averages and this would be bullish. I would then expect a challenge to the June 2006 high around 18.5.



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: 03/01/07Rank: 4Comment: 
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