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DESCENDING TRIANGLES


Liz Claiborne Continues Lower

06/20/08 09:39:02 AM
by Arthur Hill

A confirmed descending triangle and a new 52-week low confirm the downtrend for Liz Claiborne and point to even lower prices ahead.

Security:   LIZ
Position:   Sell

The descending triangle is a bearish continuation pattern. As such, a downtrend is a prerequisite for the pattern. Figure 1, the weekly chart, shows Liz Claiborne (LIZ) peaking in the mid-40s in early 2007 and declining below 20 by the end of the year. It was quite a fall, but it may not be done yet. The big trend is clearly down and the stock recently broke descending triangle support to signal a continuation of this long-term downtrend.

FIGURE 1: LIZ, WEEKLY. Liz Claiborne stock peaked in the mid-40s in early 2007 but declined to below 20 by the end of the year.
Graphic provided by: TeleChart2007.
 
Figure 2, the daily chart, focuses on the dynamics of the descending triangle. LIZ established support around 16–16.25 in March, April, and May. These relatively equal lows show buying pressure (demand) coming in each time the stock reached the 16–16.25 area. Despite these support bounces, the stock formed a lower high in May and a descending triangle took shape over the last four months. The lower high shows selling pressure coming in earlier and below the March high.

FIGURE 2: LIZ, DAILY. This stock established support around 16 to 16.25 in March, April, and May.
Graphic provided by: TeleChart2007.
 
The pattern is not confirmed until there is a support break. LIZ broke support with a sharp decline in early June. Despite this support break, the stock rebounded somewhat, but this area now turns into resistance. The descending triangle has been confirmed for all intents and purposes.

Based on traditional technical analysis, the downside target is to around 12. The length of the pattern (~4) is subtracted from the support break (16) for a downside target. In addition, the stock forged a new 52-week low with the support break and this also shows weakness. LIZ is leading the way lower and out of favor.



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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