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Memc Electronic Hits Wedge Support

04/30/08 09:53:56 AM
by Arthur Hill

Memc Electronic is consolidating after a support break, but relative weakness and a potentially bearish pattern could spell further weakness.

Security:   WFR
Position:   Sell

For some perspective, Figure 1 shows Memc Electronis (WFR) over the last five months. The stock declined sharply in December-January, rebounded with a rising wedge from January to March, and then declined sharply at the end of March. This decline broke rising wedge support and the stock consolidated after the trendline break.

FIGURE 1: WFR, DAILY. This stock declined sharply in December 2007–January 2008, rebounded with a rising wedge from January to March and then declined sharply at the end of March.
Graphic provided by: TeleChart2007.
The rising wedge is typical for corrective or countertrend rallies. Even though the stock overshot the 62% retracement on the advance, it did not reach the December high and formed a lower high. A downtrend starts with a lower high and the wedge break is looking rather ominous.

Figure 2 focuses on the wedge break and consolidation. After the sharp decline in late March, WFR rebounded with a smaller rising wedge. The rebound is quite flat and looks like a consolidation after the decline. WFR traded down to the lower trendline and a break below the mid-April low would be bearish. This would signal a continuation lower and target a move toward the January low around 62.

FIGURE 2: WFR, DAILY. After the sharp decline in late March, WFR rebounded with a smaller rising wedge.
Graphic provided by: TeleChart2007.
For indicators, I am showing the Bollinger bands and price relative. The Bollinger bands contracted over the last few days and this volatility contraction often leads to a volatility expansion. Bollinger bands do not provide directional clues so we must turn to other indicators. The price relative compares the performance of WFR to the NASDAQ 100 ETF. I choose QQQQ because WFR is a big semiconductor stock. The price relative already broke below its March-April lows and this shows relative weakness. WFR is not keeping up with other large-cap techs and this is negative.

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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