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SanDisk Charts: Running of the Bulls?


Before getting too giddy over these patterns, it's worth looking at the DeMark counts to see if they describe this burst as a last gasp move, or if the trend will remain the bulls' friend.

A couple of days ago I rehashed my fundamental arguments in favor of SanDisk's (NASDAQ:SNDK) business (see SanDisk: Time for a Margin Call.) Today, it is worth taking a look at the technical side of the stock.

Yesterday SNDK broke through its 7-year-plus high ($53.38 on a weekly close basis back on Oct. 28, 2011). If the breakout holds through the end of the week, pattern-watchers should salivate not only over the break above the trendline, but also the break out of a multi-year cup-and-handle formation (again, weekly basis). However, before getting too giddy over these patterns, it is worth looking at the DeMark counts to see if they "describe" this burst as a "last gasp move" or if the trend will remain the bulls' friend. The answer is...yes.

On a weekly chart the latest TD Sell Setup has failed (bullish), and there remain three higher highs before the stock prints a Combo Countdown Sell. On the daily chart, a TD Sell Setup printed last Friday, and a Combo Countdown Sell printed just yesterday, with its corresponding "risk level" sits at $55.02. Barring a "price flip" the TD Sell Setup will expire tomorrow, and if the stock can take out the "risk level," it will also discredit the exhaustion message of the Combo Countdown Sell. Bottom line?

The bottom line is that once again traditional technical analysis and DeMark indicators work well together. Pattern-watchers want to see follow-through and volume after a breakout (volume this week is running approximately 16% ahead of the 8-week average), while DeMark calls for the Risk Level to be overcome in order to lower the danger-flag of price exhaustion. If the stock cannot clear the $55.02 mark it is not the end of the bulls' world, but it may take more time (backing and filling) before our friendly bovines regains their strength.

(If you're new to the meaning of DeMark indicators, here is a primer on the basics: Interpreting DeMark Indicators: All Trends Must End, But the When Is Key.)

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