May 12th, 2008
I came across an interesting post on one of the blogs I read daily, Technical Insights Stock Analysis. The author identifies EMC and writes:
“As more advanced technicals become all the rage, sometimes the basics – flag patterns, spikes in volume, or rounding bottoms – are forgotten or used more sparingly. But they should not be pushed aside if the more advanced technicals do not scream buy or sell.
A timely example is EMC. Over the past few months, EMC has carved out a nice rounding bottom (or cup), and is in the midst of a nice consolidating “handle” which has been forming over the past 2 weeks. Coincidentally, the stock is sitting right on its 50 day moving average.”
But there’s one other piece of the story which would only become apparent to those who view stock charts on a number of time horizons. For example, I use a three chart view on my Telechart screen with the 11 month/daily bars being my primary (the others are 4-years/2-day bars and 12-years/4-day bars). I saw something, therefore, which was extremely important and added some longer-term goal setting to the EMC technical analysis above. I’ll show you what I mean:
Notice that where EMC is at today is more significant that merely the “rounding bottom/cup” referred to above. EMC hit and bounced off two very significant trendlines:
- The upper resistance boundary of the 3-year horizontal channel it formed between 2004-2007 and
- The lower support boundary of an even longer (2003-2008) upward-sloping channel.
The writer is absolutely correct when he says that basics should not be ignored and the basics I like to look for trendlines, patterns and moving averages. And what I look for are significant longer-term moves that can achieve larger percentage gain targets.
The EMC chart presents a perfect example. The significant move out of the horizontal channel in 2007 might have represented a “life cycle momentum move”, a move driven by life cycle changes in the company (like new businesses, new management, new products) that represent a rebirth. If that is the case, then the company can ride a growth cycle lasting many years and carry the stock higher by orders of magnitude multiples (2x, 3x or more).
But the last summers credit crises and ensuing economic slowdown put the life cycle change on hold. As the economy recovers and growth resumes, EMC could relaunch its life cycle growth and the stock could easily rise to 25 and higher.