The Disaster Chart du Jour


The chart above is as of late "after hours trading" Thursday evening.

As one can see, the head and shoulders topping pattern that had been developing on the daily chart was a classic one. After it broke its neckline in Wednesday trading (a nice early warning sign that something was afoot), Lucent's after-hours earnings warning has now sent its shares tumbling to levels well below both the 100 and 200 day moving averages. Longer term, this is of course singularly bearish.

Shorter term however, note below that on the weekly chart, the 200-week moving average comes in right around $51-52 a share.

This suggests that a substantive bounce from current levels is likely first. We would look for this stock to rebound toward $65 in the very short term, before coming under severe pressure thereafter. In Elliott terms, $51-$52 could mark the end of a iii of 3 of a I wave down. $65 or so would then be a logical iv of 3 of I or perhaps the eventual (II) wave bounce itself.

Too many more high cap stocks doing this type of thing should finally shake the public misconception to buy every dip, but we're probably not quite there yet. We'll leave that realization to some later date and probably some other high cap such as Cisco, Microsoft, or Dell.

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