Don't Ignore This Chart

Waters Corp Stalls Near Key Retracement

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Waters Corp led the market in 2017 with a 65 percent gain, but lagged in 2018 as the stock corrected the last six months. I am watching this correction pattern for a breakout that would signal a continuation of the bigger uptrend. Waters Corp makes analytical equipment and software for laboratories and scientists.

How long and how far should a correction extend? When does a correction turn into a something more, such as a bigger downtrend? Those are, of course, the million-dollar questions when analyzing a chart. A lot depends on your timeframe so keep in mind that this is a weekly chart covering two years, which I would consider a long-term timeframe. Ideally, a correction should retrace 1/3 to 2/3 of the prior advance and key moving average crosses should hold. In Fibonacci terms, a correction should retrace 38.2 to 61.8 percent.

The chart below shows WAT retracing around 38.2% of the prior advance with a falling wedge over the last six months. This is still a normal amount for a correction within a bigger uptrend and the 10-week EMA remains above the 40-week EMA (barely).

The stock is finding support in the 190-195 area and the range narrowed over the last six weeks. As with a Bollinger Band squeeze, this narrowing range signals indecision that could foreshadow a decisive move. But which way? Here are two things to watch. A weekly close above 205 would break the six week range and argue for further strength. Chartists can also watch the PPO for an upturn and move back into positive territory.


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Arthur Hill
About the author: , CMT, is a Senior Technical Analyst at StockCharts.com. He has written articles for numerous financial publications including Barrons and Stocks & Commodities magazine. Focusing predominantly on US equities and ETFs, his systematic approach of identifying trend, finding signals within the trend, and setting key price levels has made him an esteemed technician. In addition to his CMT designation, Arthur holds an MBA from the Cass Business School at City University in London. Learn More
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