Who Needs Reasons?
It’s natural for people to hunt for
“reasons” behind a sudden stock reversal. But often the chart suggests
brewing trouble before the alleged cause ever surfaces. Tuesday’s action in
Hewlett-Packard is a case in point.
Hewlett-Packard
(
HWP |
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PowerRating) shares fell
7 to 119 on double average volume. The decline reversed a prior breakout and sent
HP’s share price into its previous, 13-week base.
The immediate cause of the sell-off, according to the financial press, was an analyst downgrade. Sanford Bernstein lowered its rating on the tech giant
and Dow component to “market perform” from “outperform” and
cut its Q3 earnings forecast to 81 cents a share from 83 cents.
The stock may have pulled ahead of
itself on a technical basis. Prior to the June 8 move into new high
ground, the stock formed a upward-wedging handle, a bearish pattern. See the
dark green line on the chart. As the stock climbed to new highs, volume dried
up. Another bearish sign.
In cup-with-handle patterns, the
handle should drift downward on low volume, indicating the departure of weak
holders but otherwise muted selling. The you want the stock to explode into new
high ground on surging volume.
The Hewlett-Packard downgrade
pressured some of the other techs, but I see divergent strength and constructive
base formation in the semiconductors. Intel
(
INTC |
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PowerRating), for instance, rose 6
7/16 to 131 1/2. Although volume was subpar, the stock is rounding nicely up the
right side of a cup pattern. Rambus
(
RMBS |
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PowerRating) gained 29 3/4 on 248 9/16 on
strong volume.