Technical Analysis - Red Hat
Note: the following analysis is formulated as an assimilation of Fibonacci, DeMark, Elliott Wave and other technical indicators. It is offered as education and not intended as advice in any way.
Red Hat (RHAT:NASD) has traced out what looks like a completed ABC zig-zag corrective bounce from the lows registered in September 2001. The all-time high of $151 in December of 1999 resulted in a large degree (and clean) impulse wave down to the 2001 lows.
The price action from 2001 has been corrective and looks, at the June 2nd high of $29.06, to have completed the 5th wave of a larger C wave within the much larger ABC bounce from the 2001 lows.
A previous wave 2 peak (at $28 from September 2000) has acted as recent resistance. More interestingly, the C wave of the ABC bounce from the 2001 lows (the C wave started in February 2003 and may have ended on 6/2/04) is related to the A wave (the bounce from 9/01 to 1/02) by almost exactly 1.618, a common Fibonacci relationship.
Important Demark trend exhaustion indicators have now registered on the weekly chart, the daily chart, and the hourly chart, with daily momentum indictors clearly diverging on the 6/2 high, a classic large degree topping indicator.
As well, daily momentum has now turned down (as of 6/8) and has made a new low on the daily chart, indicating that whatever degree of correction is currently being traced out, RHAT is not yet near a good bottom.
Meanwhile, two important uptrend lines (from August 2003 and December 2003) have been broken by this latest weakness. These indicators, taken together, suggest that the recent 6/2 high was of a large degree and perhaps even the end of the corrective bounce from the 2001 lows. Time will tell.
Meanwhile, since this stock is unlikely to head straight down from here, timing will be key from an execution standpoint. The very short term trend is showing a clear impulse wave down from the 6/2 highs, with aftermarket action last night indicating that a 3rd wave of a larger impulse wave down from 6/2 is underway.
Caution will be warranted from a risk/reward perspective once a complete "5" wave move down from the $29.06 high is seen. A bounce could ensue that takes prices back to Fibonacci resistance, where further caution would be warranted. For now we'll remain on the sidelines looking for a completed "5" wave move down from $29.06 and then the expected bounce back to Fibonacci resistance. Stay tuned...
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