Hi MJ,
I am probably a bit biased now because I see a predominance of bearish signals in the Nasdaq in general.
I see no indications that SUNW would be a good long position at this time, and if anything, is a better short position.
My reasons:
1. SUNW is flirting with disaster. After forming a topping pattern in December, SUNW really fell from grace, culminating with two professional gaps down in January:
stockcharts.com[w,a]daclyyay[dc][pd20,2!b200][vc60][iLg!Lp14,3,3]&pref=G
Note the bearish divergence in this chart (e.g., stochastics). As the price of SUNW was struggling higher, there was increasing technical deterioration that did not reflect price movement. This usually is a very bad sign, and often seen before a strong move. That's exactly what happened next with SUNW, as the bottom fell out at the beginning of the year.
2. SUNW failed at the critical 200 sma, as you can see from the above chart. However, that failure was not confirmed, and instead SUNW fought back above the 200 sma. That latter rally also was not confirmed. Now SUNW was been turned back from chart resistance, gap resistance, and resistance from the upper BB rail, all of which converge at just below $4.50, and these can be seen on the above chart. The chart below shows another source of resistance for SUNW: the descending 50 sma. Together, these resistances summate, and IMHO will prove far too much for SUNW to overcome here.
3. SUNW is getting dangerously close to a bear cross, which as you may know is when the 50 sma crosses down through the 200 sma. This is usually the kiss of death, but I consider this somewhat less significant in this particular case because the 200 sma is horizontal. There are other reasons why I don't think SUNW will fall precipitously from these levels, and that has to do with the long-term trend, which puts a bear cross into proper perspective (a bear cross doesn't indicate the same thing for all situations!). More on this below. Nevertheless, if this occurs, it will be another strike against SUNW's prospects for any significant sustained rally.
stockcharts.com[w,a]daclyyay[dc][pb50!b200][vc60][iLg!Lp14,3,3]&pref=G
4. If this bear cross in fact occurs, and if SUNW trades below the 200 sma again (very likely) and confirms that failure with a lower low and a lower high, then by definition SUNW has entered a new trend: downtrend (long-term). That will indicate that SUNW is dead money for a year or more. I'd say the chances are fairly good this will happen.... that overhead resistance just looks way, way too powerful to me (also note the volume-heavy power candles beginning at about $4.60 or so). But see below---SUNW cannot enter a downtrend unless and until it also fails at the lower regression channel rail, because that defines lower last-ditch support.
This is an unusual example, and shows that you cannot assume the significance of a failure at the "all important" 200 sma (even if "confirmed") without considering the long-term context. Usually, the interpretation is much simpler, and usually involves a transition from long-term uptrend to long-term downtrend.
But here you cannot conclude that SUNW has entered a long-term downtrend unless and until SUNW gives clear evidence of failing at it's current long-term trend: sideways trading range. A very interesting and instructive example, I think.
5. There are technical sell signals, but these are not strong. SUNW is relatively overbought, but not extremely overbought:
139.142.147.218
On the above chart, you can also see that SUNW has been turned away by yet another source of resistance: the 200 ema.
So where is SUNW headed?
Short term, I think down. But if you look at the long term chart, you can see that SUNW after a long, long fall from the 60's where it was trading in 2000, SUNW finally found a bottom and has been in a sideways trading range there for almost two years now:
stockcharts.com[w,a]waclyyay[df][pb50][vc60]&pref=G
139.142.147.218
139.142.147.218
So the best place to short SUNW would be near the upper rail of the regression channel, and the best place to go long would be near the lower rail of the regression channel. You can see that right now SUNW is at the middle of the regression channel, but this is an area of relative support/resistance.
When you add the resistance from the middle of the regression channel to all the other sources of resistance detailed above, together with the fact that there are no signs of bullish momentum, I think you have a pretty good case for a short position here in SUNW, and certainly no case for a long position.
....all IMHO, of course.
T |
