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Pulling The Plug On Pool Corp.

06/25/08 08:44:34 AM
by Arthur Hill

Pool Corp. broke triangle support over the last few days, targeting further weakness into October.

Security:   POOL
Position:   Sell

Figure 1 focuses on the large triangle. Pool Corp. (POOL) surged in January, declined sharply in February, and then worked its way higher from February to May. With a reaction high in May, a large triangle took shape and 2008 has been one big consolidation. Trading since February has been confined to the January range. The stock has gone nowhere since settling down in early February.

FIGURE 1: POOL, DAILY. Pool surged in January, declined sharply in February, and then worked its way back up from February to May.
Graphic provided by: TeleChart2007.
 
Triangles are neutral patterns that require a break for a directional bias. The stock established resistance with the late April and mid-May highs. The late May lows set the support zone. In addition, the triangle trendlines also act as support and resistance. POOL's recent break below the lower support levels is bearish and points to lower prices in the coming months.

There are two methods to establish downside targets. The first method is to measure the height of the pattern and subtract it from the support break. The pattern is around 6 points high and the support break at 19.5 projects further weakness to around 13.5. The measure and projection are shown with the red dotted lines.

FIGURE 2: POOL, WEEKLY. Extending from the triangle low, the trendline hits the 13 to 14 region around October.
Graphic provided by: TeleChart2007.
 
The second method is to extend a parallel trendline from the triangle low. This (dotted) trendline runs parallel to the upper triangle trendline. The trendline hits the 13–14 region around October (Figure 2). Taken together, I expect the bigger downtrend to continue with a move below 15 by October.



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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