Daily and Weekly Chart Take on DELL for Aug 28

Aug 28, 2009: 1:57 PM CST

A reader asked me to take a look at Dell Computers Inc (DELL) and I thought it had an interesting pattern certainly worth showing.  Let’s take a look at the Weekly and Daily technical structure of DELL.

Weekly:

I could have easily started by showing the Daily Chart and highlighting how strong the uptrend is and how that chart seemed to point to higher prices into infinity… much so like the lesson I examined in the post: “Updated Look at IBM Shows Why Higher Timeframe Analysis is Critical.

For now, let’s start with the higher weekly frame and do some simple analytics.

Price has strengthened sharply from its 2009 lows of $8 per share to a ‘price doubling’ and a test of the $16.00 level – impressive for just over half of a year!

Trend-wise, price is still in a downtrend (lower swing highs and lower swing lows) but we’re starting to see signs of life from price breaking solidly above the falling 20 and 50 week EMA, while the 20 week EMA rallies upwards in an attempt to “cross bullishly” above the 50 EMA.

It would be very bullish for Dell going forward if price can consolidate or even continue rising here, as it would tip the odds in favor of a fresh new uptrend.

For now, the area of ‘resistance’ to watch is shown by the loose confluence of the respective 38.2% and 50% Fibonacci retracements drawn from two key swing highs both to the $8 recent low.  This price zone rests at $17.75, which is very close to where price is at the moment… and apparently failing on the daily frame.

Daily:

Again, if you’re looking only at the trend and price structure from the daily frame, you would likely be wildly bullish Dell – and that’s fine.  Trends are relative to timeframes, and our trading horizons and holding periods are all different.

Price initially broke above the 20 and 50 day EMA in March, tested this level in early April, and then rallied high to break above the $10.50 swing high in late April as the 20 and 50 EMAs crossed bullishly to flip the trend (on the daily chart) officially to up… meaning the strategy became “buy support pullbacks.”

All pullbacks to the 20 or 50 EMA ‘worked’ with the exception of one “Bear Trap” break (on very heavy volume) before rallying sharply higher to form new 2009 highs.  This occurred at the same time as the S&P 500’s “Failed Head and Shoulders” pattern which also triggered a classic sell-signal which was a bear trap.

For now, price has rallied sharply on good news and has broken out solidly to fresh 2009 highs on higher relatively volume.

However, today’s price action so far is troubling, and could warn that buying pressure/momentum has been used up in a possible exhaustion/climax move… which plays right into the weak Fibonacci confluence zone as described in the weekly chart.

Odds from a technical purism standpoint seem to favor some sort of retracement here, but watch for a break and close above $17.50 for odds to flip over to favor a price rise to challenge the ‘tighter’ Fibonacci confluence (which would also reflect prior support… which becomes resistance) at the $20.00 level.

Corey Rosenbloom, CMT
Afraid to Trade.com

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4 Comments

4 Responses to “Daily and Weekly Chart Take on DELL for Aug 28”

  1. manper Says:

    Hi Corey
    looking at the chart of Dell I ask you if it was possible to see a bear trap coming. If so, what are the signals one must pay attention to?

  2. sandew Says:

    The momentum indicator during first half July is lower than the one in May – so one would anticipate that going forward into later half July and into August the prices would drift lower than May levels. This apparently did not happen and we are left gazing at the 'Trap'.

    Question – if we are short on the stock then (a) what are the other indicators and macro parameters we need to have been watching in July and (b) when to cover our position ? Or is there another way to have looked at the Momentum indicator?

    Thanks
    Sandew , India

  3. manper Says:

    Hi Corey
    looking at the chart of Dell I ask you if it was possible to see a bear trap coming. If so, what are the signals one must pay attention to?

  4. sandew Says:

    The momentum indicator during first half July is lower than the one in May – so one would anticipate that going forward into later half July and into August the prices would drift lower than May levels. This apparently did not happen and we are left gazing at the 'Trap'.

    Question – if we are short on the stock then (a) what are the other indicators and macro parameters we need to have been watching in July and (b) when to cover our position ? Or is there another way to have looked at the Momentum indicator?

    Thanks
    Sandew , India