Jabil Is Showing Some Weakness

 | Jun 15, 2017 | 2:22 PM EDT
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Jabil (JBL) broke out on the upside from a six-year sideways consolidation pattern (2011-16). Typically, the longer the base pattern or consolidation pattern, the longer the subsequent rally. JBL has not quite doubled in the past 12 months, which is a pretty good move, and normally I would be looking for much higher price targets, but there are some technical concerns we need to air.

Looking at a daily bar chart of JBL, below, we can see the rising 50-day moving average line has defined the rally since December. The 50-day line was tested last month and looks like it could be tested again in the next few days. The possible problem with the next test of the 50-day average line is that it might not become a buying opportunity.

Unlike the test in May, the On-Balance-Volume (OBV) line is edging lower, telling us that sellers of JBL have become more aggressive. In addition, we can see a lengthy bearish divergence between the higher price highs seen in November, March and June and lower momentum readings. JBL has indeed rallied but the pace of the rally has slowed. This divergence could be foreshadowing price weakness in the weeks ahead.

A weekly chart of JBL gives us some other clues that we don't get on a daily chart. See below. Prices are above the rising 40-week moving line, which is fine, but look at the weekly OBV line. It has been moving sideways for months, which tells us JBL has rallied without the benefit of strong accumulation. The weekly Moving Average Convergence Divergence (MACD) oscillator is up at an extreme and looks like it could cross to a take-profits sell signal, so caution is warranted.

This Point and Figure chart of JBL, below, shows us there is support in the $29-$28 area and there is an upside target of $38.05. All well and good, but prices are in a down column (O's) and a decline to $28.65 could precipitate further price weakness.

Bottom line: If you are long JBL, I would protect that position with a sell stop just below $28. It would be nice if JBL made a sideways correction, but we are seeing enough bearish clues to be on alert. Yes, we have an upside target of $38 but we also know it is better to be forewarned than surprised.

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