December 31st, 2005

Syneron Medical (ELOS)

Were you caught in the down-draft that recently hit ELOS as a result of street downgrades over their not meeting sales expectations. If only everyone had looked at some longer term charts it all would have come into focus:

The ELOS chart looks familiar and and the comments would have been similar to my November 25 post on the prospects for Google (it closed that day at 428.62, and at 414.86 this past Friday).

ELOS had been carving a fairly wide channel since November, 2004 (see the upper and lower boundaries in the above chart). The upper boundary resistance trendline results from connecting the highs of November 24-28, 2004 and the high of August 3, 2005. ELOS bounced off the lower boundary support trendline 4 times after that August high and once more afterwards in mid-October at 30.96.

It stalled again at the upper boundary at 46 on December 12. The gap down killed any hope that it would be able to penetrate the resistance level trendline at this attempt (and extremely difficult task without significant volume and a strong market tailwind). But unlike Google, the ELOS failure and subsequent poor market action portends a serious shift in supply and demand balance for this stock.

While there will probably be a bounce in an attempt to close some of the gap generated over the past 3 trading sessions, too much damage to the momentum has been inflicted to either commit new money or not take advantage of a recovery (to the 35-37 area) to pass the baton to other, more venturesome, soul by lightening or closing this positions and putting the money to work in stocks with less damage to repair.

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