FPA Chart

[Phaedrus]

FPA was in an extended trading range for well over a year, before breaking above previous resistance in May 2003. It continued on with a strong uptrend which lasted about 18 months, giving a clear trendline-break Sell signal on 17/8/04. The trailing stop was also hit and a 120 day exponential moving average was breached the following day. Since then, this stock has continued to make lower highs, though it appears to have found some support at just above $4.00. The preponderance of high volume down-days (red bars, circled) show that this stock is coming under fairly strong selling pressure. The falling highs show that sellers are becoming more keen - they are prepared to accept lower prices to exit this stock. The support at around $4.04 is provided by a pool of buyers who consider FPA to be good value at that price - they are providing a "floor" of support. Now, we don't know which just yet, but one of these groups will overpower the other. Either the buyers will be overpowered by increasing selling pressure, leading to a break of the support at $4.04, or the sellers will be taken out by a wave of keen buyers willing to pay a little more to fill their buy orders.
This formation is a descending triangle (marked in pale blue). Statistically, it is more likely to break down rather than up, but this pattern has a relatively high failure rate (45%) so has no useful predictive value. The thing here is to wait for the breakout. A break below the support would be bearish (with a high probability of further weakness). A break above the upper line of the triangle would give a more positive prognosis.
It is "wait and see" time for FPA.

[airedale]

Welcome back,Phaedrus. Trust that you had a good break. Your comments are always well written and timely. I had been watching FPA for some time. I will keep my telescope on it.

[Stock Man]

Phaedrus, correct me if wrong re descending triangle drawn: the fact that it has almost reached the apex means that in this instance it (almost) has fallen into the 45% group (failed), and FPA may probably just form a trading range. Triangles should breakout 2/3 to 3/4 of the way into the formation......so.....about now!

[Phaedrus]

SM,
Right - the average breakout distance for this formation is at 70% of the distance to the apex. About now. Maybe I should have said "This is make or break time for FPA" rather than "wait and see time"!
I would not want to make too much of any descending triangle formation though. As Tom Bulkowski, author of the 'Encyclopedia of Chart Patterns' says :- "A 45% failure rate is shameful, but that is what descending triangles have".
Whichever way it goes, FPA has been looking weak for over 3 weeks now, and the exit signalled by the trendline break is looking better all the time.

[Risk]

quote:Originally posted by Phaedrus

... the exit signalled by the trendline break is looking better all the time.

WB Phaedrus.

Im a bit confused what you mean by the above quote.
the exit is looking better than what?

(or do you mean that it wasnt a false break downwards...but that seems pretty obvious since all three signals have already confirmed this)

[Phaedrus]

It is really only subsequent price action that shows the "worth" of any particular signal. If FPA continued the current downtrend all the way back down to $2.70, the trendline break sell signal shown here would be seen as very useful indeed. If, after triggering a sell signal, a stock immediately reverses and resumes its uptrend, I would view the signal as a bum steer and would perhaps look to reducing the sensitivity of the indicators I was using for that stock in an attempt to avoid the same thing happening again.
The further FPA drops, the better an exit at the trendline break looks.

[Stock Man]

Fair Point Phaedrus. And FPA currently is a very interesting case study. It has broken all 3 signals, 2 of which are fairly lenient imo; the 7x atr and the 120 period MA.

As you have mentioned there is a minor descending triangle formed....the validity of which is unsure.....however, when I look at some other indicators e.g. RSI (upto 40period RSI) on the daily I get some interesting divergences. Of course this doesn't really matter, what really matters is price action, which you have already covered with the bulls vs bears supp/res scenario. All this brings me back to your original comment "it's wait and see time".

[kittydashwood]

Plenty of buyers lurking in the shadows. Break upward coming IMO

[coge]

KDW I think you have summed up, however it may continue to range sideways(ish)until the half yearly,(Early November).

Interesting time.

[nelehdine]

Looked a bit sick late last week when it traded down to 403. A very healthy move this morning in a generally sideways overall market.

FPA +9 at 412

Disc: Hold FPA