Thursday, February 23, 2012

Low Bottom Formations

MetaStock SPRS Series - Week 56 - TechniTrader® Stock Discussion for MetaStock Users: The Long Term Sideways Bottom QCOM - February 20, 2012
By: Martha Stokes C.M.T.

Many technology stocks that were big movers during the last few years of the bull market of the 90’s and early 2000 have been stuck in a trading range low bottom formation for more than a decade. Now these stocks are beginning to breakout of that range and move upward.

As these stocks reinvent and recharge their companies with new technology, their stocks will once again enjoy good growth.

QCOM is a stock that has been stuck in a low range between 30-55 since 2004. It had collapsed to a low of $12.25 after having been at its all time high in 2000 at $93. It recently moved up beyond the limitations of the 30-55 trading range and is holding well at around 62.

This stock now has the potential to regain more of its lost value from 2000 as it reinvents and starts new technologies that will spur growth for the company.

Chart 1

Instead of a compression pattern out of this trading range QCOM created a short term bottom formation. This provides ample support for the stock as it continues to move upward. Note the consistent quiet accumulation going on over the past couple of years.

On a daily chart we can see the beginnings of a platform after the breakaway gap. Although this breakaway gap is rather small it has cleared the resistance monthly highs and has moved up slightly.

This should provide a good position style entry later on as this stock builds more energy.

As a big tech stock with huge outstanding shares, it will tend to move more slowly than a smaller cap stock with smaller outstanding shares.

Chart 2

In the Chart above, TTVA TechniTrader® Volume Accumulation shows a mild decline as would be expected as the stock gapped and the giant funds managers are in a holding pattern. Without speculation from institutional traders, the volume slips during a consolidation or platform. TTFF TechniTrader® Flow of Funds shows a steady flow of money into the stock during the later part of the bottom to the breakout.

Chart 3

In the Chart above, the TechniTrader® RSI/RSI hybrid indicator is not designed to expose overbought oversold but to reveal the strength of price action comparing it to prior price action within the timeframe designated, in this case about 1 month of trading days activities. Since narrow consolidations and platforms are an uptrending pattern 99% of the time, oscillators are not as effective for analysis purposes. Oscillators work during trading ranges and wider sideways best.

The lower comparison is between QCOM and NASDAQ which shows QCOM is outperforming the Nasdaq composite index. I use the NASDAQ composite index rather than the S&P500 because it has been the best performing index for several years far outperforming the Dow and S&P500, and tech stocks are where most of the action has been lately.

By using the NASDAQ as the basis for comparison it provides a far more accurate picture of how well this stock is performing against the best performing index at this time.

Trade wisely,

Martha Stokes, C.M.T.
Member of Market Technicians Association
Master Rated Technical Analyst: Decisions Unlimited, Inc.
Instructor and Developer of TechniTrader® Stock Market Courses
MetaStock Partner

©2012 Decisions Unlimited, Inc.

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