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WEDGE FORMATIONS


XM Satellite Breaks Wedge

02/28/08 11:02:32 AM
by Arthur Hill

After a bounce in January-February, XM Satellite is running into stiff resistance and a recent bearish engulfing pattern points to lower prices ahead.

Security:   XMSR
Position:   Sell

XM Satellite (XMSR) stock has considerable resistance around 13.60 from a number of technical items. First, broken support from the November lows turns into resistance. Second, the rally back above 13 retraced 62% of the prior decline. Third, the stock formed a bearish engulfing on February 19. These three items point to considerable resistance and the stock needs to take out the February 19th high to break this resistance area.

In addition to resistance, the stock shows early signs of breaking down. XMSR broke the lower trendline of a rising wedge with a sharp decline last week. There was a bounce early this week, but trendline support turned into resistance as the stock declined sharply on February 27. This decline also occurred on high volume. I mentioned the bearish engulfing in the first paragraph and this pattern was confirmed with the trendline break. See Figure 1.

FIGURE 1: XMSR, DAILY. XM Satellite stock shows considerable resistance around 13.60.
Graphic provided by: TeleChart2007.
 
The moving average convergence/divergence (MACD) confirms weakness with a signal line crossover. The bottom window shows the MACD with its signal line (nine-day exponential moving average [EMA]). The indicator held above its signal line the entire advance, and the break shows that upside momentum is seriously waning. The MACD is still in positive territory, however. A move into negative territory would likely coincide with an acceleration lower.



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

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