Saturday, January 28, 2017

SYMC is a Tale of Three Charts

One of the scans I run on a daily bases searches for potential flag setups.  These minor pauses in a trending stock often offer good entry points when the trend resumes, provide, of course, the overall stock pattern is correctly interpreted.

A stock that caught my attention in today's scan was Symantec Corp (NASDAQ: SYMC), the nationally known cyber-security software developer most familiar to consumers as the maker of the Norton anti-virus suite.  The three-day consolidation underway following a healthy upward move is what tripped today's scan.

SYMC Daily Chart
There are a lot of positives on the daily chart.  The slope of the 200-day SMA shows a healthy uptrend.  A 5-wave motive is in progress, although we'll see on the weekly and monthly charts why I start the Elliott Wave count in May 2016 and not February.  On Balance Volume is rising at a slow, but steady pace.  The RSI(9) oscillator is confirming our price action, and finally, the stock recently broke out of a descending triangle pattern and has not pulled back in the month since that breakout.

There are two warning signs on the daily, chart, however.  The first is that obvious high spike in volume on 25 January.  The size of the candle that day is rather small, warning us that we may need to take a closer look at the price action since something out of the ordinary has occurred.  It's possible that this spike is indicative of climactic action signalling an end to the uptrend.

The second warning sign is the price target for our potential Wave-(v).  Using the rule of thumb that, when Wave-(iii) is longer than Wave-(i), the conservative price target for Wave-(v) is the height of Wave-(i).  Now, nothing constrains Wave-(v) in this pattern, however history shows that this rule of thumb works with enough consistency to be a valid predictor of price action.

I show the Wave-(v) price targets as a Fibonacci extension measured from the end of Wave-(iv).  We're already trading above the 61.8% extension, and that's a level I normally use as my most conservative target in any price calculation.  So based on this, the end of Wave-(v) can occur at any time.  A count on the hourly time frame, however, suggests that this slight 3-day pause is a fourth wave in an impulse that started 3 January, so if that's the case, we may yet approach the 100% extension.

I'm going to jump to the monthly chart next, since that's the chart that puts everything in focus.

SYMC Monthly Chart
That a motive wave ran from 1999 to 2005 appears obvious on the chart.  Since price following that 2005 peak has not retraced 100% of that move, we're safe (for) now in labeling that peak the top of Wave-I.  The question before us now is what to do with Wave-II.  Has it ended, or is it still in progress?  If it ended, when, and what does that tell us about Wave-III?

What I show on this chart is one of many possible wave counts.  It has problems, but then, complex corrective waves always generate massive headaches when trying to piece together their puzzle.  I've shown, in this case, the various subwaves that lead me to conclude that Wave-II ended in February 2016 and that Wave-III is in progress.  I also show my conclusion that, for the long-term trend, Wave-1 and Wave-2 of Wave-III have completed and Wave-3 of Wave-III is in progress.

Of note on the monthly chart is the breakout of the ascending channel that formed much of Wave-II.  Following that breakout - which occurred on high volume - we had a pullback and a retest of the support line.  That retest was rejected and price spiked to an all-time high this month.  That's good news for those looking for a bullish move out of SYMC and it offers confirmation that this wave count may be correct.

There are two warning signs, however.  First, volume is once again declining, and this month's candle - despite its length - has thus far experienced very light volume.  In other words, volume is not confirming price this month.  Another way of showing that is via the On Balance Volume (OBV) indicator.  Throughout the current uptrend, OBV has oscillated a bit, however the overall indicator remains flat.  We're not seeing any signs of accumulation, and we really do need that to occur in order to sustain a lengthy upward move.

The second warning comes from the RSI(9) oscillator.  When we compare the height of the RSI now to the height during the three prior price highs, we see a pattern indicative of a bearish divergence.  At best, the RSI is not confirming price action, and it may possibly be signalling weakness that will lead to a downturn.  So, while we believe for the moment that we have a valid wave count, we do need to be aware that it could be invalidated at any time.

I've left the weekly chart for last since it really needed the monthly analysis to put it into perspective.

SYMC Weekly Chart
The current 5-wave impulse is obvious on the weekly, but equally obvious is that 5-wave patterns throughout the correction were the norm.  Were it not for the monthly chart, there would be little reason to believe that this current impulse is nothing more than the next wave in the correction.

What does add some credence to the Wave-III theory is the overall volume signature.  We see some serious demand entering the picture at the move up from what we believe to be the bottom of Wave-II.  Indeed, each of the motive waves that occur throughout this upward move are accompanied by rising volume with a strong demand signature. 

The volume pattern in the tight symmetrical triangle was accompanied by an interesting volume pattern.  A lot of shares changed hands in this consolidation, and the subsequent breakout was on rising volume. 

Now, the bad news.  The RSI(9) oscillator shows a pronounced bearish divergence on the weekly chart.  This move could very well be short-lived, at least according to the RSI.  Additionally, when we look at the symmetrical triangle, we see that it is actually a pennant formed from the Wave-(iii) motive.  I've added the Fibonacci extension targets to the breakout of that pennant, and price has already closed at the 50% extension with a high nearly reaching the 61.8% mark.  That 61.8% target is a typical end-point for a pennant breakout such as this one. 

So, how are we going to trade this one?  Well, I'm going to take my cues from the daily chart.  Regardless of the Weekly or Monthly wave counts, it's obvious that we're currently in the fifth wave of a 5-wave impulse on the daily.  The current pause may be the end of that wave, it may be the mid-point of the wave, or - most likely - it's the fourth wave of a 5-wave move on the hourly chart.

Remember, the overall market is trending up with strength, so right now we're only taking long positions.  Therefore, if this stock breaks to the downside from here, we'll mark Wave-(v) complete and wait for Wave-(a) to play itself out before going long on Wave-(b).  If, on the other hand, we break to the upside, we'll open an immediate long position.  We'll set a price target of 28.41 with a stop just below the low of the entry day.  This is a two or three day trade at most, and it's a pure motive-wave play.  We will want out of the trade at any hint of weakness.  Based on the pattern on the chart, however, we believe the probability is strong for a short-term trade to the upside with a maximum 3-day trade horizon.

Happy Trading.

No comments :