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MACD


RIMM Shows Weakness In Range

03/13/07 08:13:28 AM
by Arthur Hill

Research In Motion has a flat flag working on the 60-minute chart, and a break below support would signal a continuation lower.

Security:   RIMM
Position:   Sell

Research In Motion (RIMM) went vertical from August to November 2006 and then stalled over the last three to four months (Figure 1). The stock established support around 120 and resistance around 145. This may seem like a large range, but it is relatively tame for a volatile stock like RIMM.

FIGURE 1: RIMM, DAILY. This stock saw a sharp rise toward the latter half of 2006 before stalling.
Graphic provided by: Telechart 2007.
 
There are signs of weakness within this trading range. The stock surged to resistance in February and failed to break through. The stock gapped up and even broke to new highs on February 26, but this gap failed to hold and RIMM declined sharply over the last few weeks. The gap is now an exhaustion gap, and the failure to hold shows weakness among the bovines. In addition, notice that MACD moved below its signal line.

FIGURE 2: RIMM, HOURLY. The stock gapped up on February 26 and then gapped down the next day.
Graphic provided by: Telechart 2007.
 
Turning to the 60-minute chart (Figure 2), we can see that the stock actually gapped up on February 26 and then gapped down on February 27. This further solidifies the failure at resistance. RIMM found support around 133 and formed a consolidation over the last six days. Overall, the setup looks like a sharp decline and flat flag. A move below the flag lows would signal a continuation lower and target further weakness toward 120. Traders can also look for the moving average convergence/divergence (MACD) to move below its signal line for confirmation.

There are two reasons for the target around 121. This area marks range support on the daily chart and the flag target projects a move to this area. The initial decline was from 147 to 131 (~16 points). A similar decline from the flag high would project a move to around 122 (138 - 16 = 122). The target at 121 was found by taking the middle ground.



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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Address: Willem Geetsstraat 17
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E-mail address: arthurh@tdtrader.com

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Date: 03/13/07Rank: 4Comment: 
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