Saturday, November 21, 2009

Divergences in the uptrend (WLL)

This week I'm going to try and post at least one chart per market day, maybe more. Lets start with this WLL chart. The obvious thing here is that there is a solid uptrend here on multiple time frames. The blue line currently at $50 connects the March low with the first correction low in July and represents the "long" term uptrend. In the intermediate term, WLL has found support at its rising 50 dma, which is clearly above it's 200 dma. So long as WLL can hold that 50 dma (currently at $59.5), which was tested Friday, I'll expect this thing to make a new high soon above $65. The measured rule target for a break of $65 is $70.

On the other hand, and this applies to many other stocks I'm seeing, especially small caps, there is a series of lower highs in place and are divergences are showing up. As seen in the chart above, CCI and RSI have been making lower highs for a few months now and to make matters worse, CCI just crossed zero as the stochastics gave a sell signal. So while the trend is up there is reason for extreme caution here. I also find it interesting that the first leg up from March lasted about five months and since the July low it has been about five months. This doesn't mean that WLL is going to correct here, but I wouldn't be surprised if it headed down to $50. Watch for a close below $59.50.

Disclosure: I have no position, but I will take one if it breaks.

Side note: This is an energy company so keep an eye on crude if you trade it.

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