Tuesday, January 10, 2017

TEL Sitting On Support in Bull Channel on Daily Chart

TE Connectivity Ltd. (NYSE: TEL) spent virtually all of 2015 and 2016 in a Wave-4 complex correction on the weekly chart.  This corrective pattern developed a strong bull channel that ran from July 2016 through the present. A series of oscillations within the channel created numerous swing trade opportunities as the year progressed.  Whether or not another opportunity is presenting itself now is up for discussion.

TEL Daily Chart
As we've discussed previously, the time to enter a long position is when the stock is resting on a support line.  That's precisely where TEL sits today.  This particular support line formed as a major resistance line both in November 2015 and again in November 2016.  This increases the potential that it will carry some weight in its role as a support line now.  (Remember, once broken, a resistance line becomes a support line and vice versa.) 

If we back up one day and look at the candle that completed on 9 January, there's even stronger evidence that support may hold.  The extremely long shadow in yesterday's candle bounced off the support line directly below the current line, and it did so on very high volume.  The stock closed at the current support line, and that's essentially where it traded all day today.

So this is a solid entry and the stock's direction is up from here, right?  Well, not so fast.  What is somewhat troubling is the volume pattern on the current pullback from the stock's 52-week high.  Supply has been on the rise since we emerged from the holiday period and the true body of the daily candles have been longer to the downside than they have been to the upside.  There may be a fair amount of institutional selling underway, and if that's the case, this stock may well break to the downside.

There is still a fair amount of overlap in the pattern, so it doesn't feel like we've entered the next impulse wave - a wave that will be the fifth and final impulse on the long-term monthly chart.  The way the stock's behaving right now, it appears that this Wave-IV correction has at least one more leg to run before we can move to that impulse. 

The RSI(9) Oscillator isn't helping shed much light on the situation in this case.  Comparing the highs and the lows on the oscillator to their price counterparts on the chart, it appears the RSI on the daily chart is simply confirming the price action.  There's no hint of a divergence either way, just yet, and I would feel much more comfortable entering long if there were signs of a bullish divergence in the RSI.  There's not.

The weekly chart's a tad more interesting, however:

TEL Weekly Chart
From Wave III, the corrective pattern almost formed a nice triangle correction.  Almost, that is, were it not for a Wave-A that was too short by a long margin.  Still, the diagonal trend line along the top of the correction was decisive, with five separate touches before it was ultimately breached.  From there, two separate tests challenged the trend line, but again, it held its ground and price has moved consistently upward.

The moving averages are cooperating on the weekly, with the 200-period and 50-period all sloping upward.  The 10, 20, and 30 period averages are all in descending sequence, as befits a good uptrend. Thus far, the weekly candle bounced off the 20-period moving average, and with three days remaining before the candle closes, it shows a long shadow with a short body.  That's a bullish draw as it sits now, but of course, that can change over the next three days.

As is the case on the daily chart, the weekly RSI(9) oscillator is merely confirming price action, although it does have a definite bullish slant to the overall pattern.  The three bearish candles drawn off the 12 December peak are troubling, certainly, but not overly so.  Volume on the weekly chart has been modest, and the candle bodies are not especially long as compared to earlier waves.

So it comes down to this.  With price resting on support, is this the time to enter long?  I won't be, at least not just yet.  While the weekly is showing signs of strength, the daily is hinting that it's got a bit more pullback left in it, and I'd rather enter closer to the bottom of that pullback if possible.  The way I'm playing this is to watch how the next few candles develop.  If we break below the current support line, I'll watch for another consolidation pattern similar to the one in November when we last entered this range.  A breakout (either way) from that range would be a nice play since we'll either be going long off support or short off resistance.  Precisely the type entry we want. 

If, on the other hand, we break above the resistance line sitting right at the top of today's candle, then we'll enter long knowing that the resistance line pivoted and became a support line.  That line has some teeth as well since it has served as both support and resistance going back to November 2015.

Exercise a bit of patience on this one.  We need to give this stock a few more days to reveal which way it intends to run. 

Happy Trading.

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