A fellow Minyan asked me to take another look at Fannie Mae (FNM: NYSE) and provide an update. For those who may have missed it we previously discussed the Point & Figure technicals of FNM here.
FNM is off more than a buck this morning and the chart below tells us the short-term level to watch is 66. A print today of 65 would tell us the near-term bearish trend has reasserted itself for the first time since March. According to the chart the next important level of support beneath 66 lies in the 59-60 area.
An expanded view of FNM on a two-point scale offers a better picture of the longer-term trend. Since the stock's all time high in December of 2000 we've seen a series of lower highs and, following the violation of a critical support area in 2002, lower lows. This longer-term chart provides the technical underpinnings of the long-term bearish case for FNM and, because there must be two sides to make a market, it also shows the last straw of hope the longer-term bullish case rests on.
Two things to note on this chart:
· In July 2002, the stock violated important long-term support in the 74-76 area. This was an important breakdown for the long-term bearish view of the stock and, at least so far, has proved to be a serious battleground for the stock, keeping a lid on any upside attempts. Remember, former support will tend to act as resistance on the way up. That has certainly been the case for FNM.
· Second, the stock has so far not formed a lower low this year. The 60 area is, in a technical sense, the last straw bulls can point to in support of the thesis that the stock's worst days are behind it.
I fall into the long-term bearish camp, of course, based on the charts above and the negative short and long-term relative strength readings for FNM. It is my view that this stock has not yet seen its lows. Nevertheless, I believe that if the stock makes a meaningful push back above 76 without making a lower low the bearish case would be in jeopardy, or at least postponed. That is also why the potential violation of near-term support at 66 is something I'm watching carefully. If the short-term trend falls back into line with the longer-term trend, I would expect the test of 60 to occur sooner rather than later.
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