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GAPS


RIMM Hits Resistance

08/26/08 09:06:47 AM
by Arthur Hill

Research in Motion is meeting resistance from a big gap, and a recent MACD crossover signal points to lower prices.

Security:   RIMM
Position:   Sell

Figure 1 shows Research in Motion (RIMM) over the last three months. The stock gapped down and declined sharply from mid-June to mid-July. After a doji and bullish engulfing in mid-July, the stock rallied back above 130 in August. Even though the stock has yet to break down, it is meeting resistance from the June gap and could form a lower high (below the June high).

FIGURE 1: RIMM, DAILY. The stock gapped down and declined sharply from mid-June to mid-July.
Graphic provided by: TeleChart2007.
 
RIMM first met resistance in early August with a harami (black oval). This bearish candlestick pattern did not result in a reversal, but it did signal the start of a consolidation as RIMM traded flat the next two weeks. The stock established support at 124 twice in mid-August and a break below this level would be bearish. This would forge a lower high and signal a continuation of the June–July decline.

In addition to resistance, the moving average convergence/divergence (MACD) and the on-balance volume (OBV) are weakening. The MACD moved higher as the stock advanced from mid-July to mid-August. This momentum indicator rolled over in mid-August and moved below its signal line. Momentum is waning and this could foreshadow a support break.

FIGURE 2: RIMM, DAILY. OBV is the thin blue line on the price chart.
Graphic provided by: TeleChart2007.
 
OBV is the thin blue line on the price chart in Figure 2. The indicator kept pace with the stock from mid-July to early August, but weakened in mid-August. While the stock managed to trade flat, OBV declined and selling pressure is picking up. It is also worth noting that upside volume was not impressive during the advance, and this often happens during a countertrend rally.



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: 08/27/08Rank: 5Comment: 
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