Seagate Technology (STX) gapped lower last month, but it has been stabilizing above the rising 200-day moving average line. The price action might be considered a bear flag pattern, which could foreshadow further weakness ahead -- but that isn't the whole story.
Let's dig deeper into the technical setup before turning into a bear -- after all, the trend is still up and we want to trade in the direction of the trend until it reverses.
In this updated daily chart of STX, below, we can see a pattern of higher highs and higher lows -- the simple definition of an uptrend. This bullish pattern would be upset if STX rallied to, let's say $46, and then turned down below $42. This would change the pattern to lower highs and lower lows. STX is trading below the declining 50-day moving average line, but it is above the rising 200-day line.
The daily On-Balance-Volume (OBV) line is still rising, and suggests that longs remain bullish. The Moving Average Convergence Divergence (MACD) oscillator has slipped below the zero line for an outright sell signal on this timeframe.
In this weekly chart of STX we can see that prices are above the rising 40-week moving average line, but the slope of the line has begun to flatten. The weekly OBV line turned up sharply in May of 2016 -- and is still bullish overall. The OBV line has turned sideways in the past two months, so this could portend a shift to a new trend, but it is too early to decide. The weekly MACD oscillator in the bottom panel shows a crossover to a take-profits sell signal.
This Point and Figure chart of STX, above, does not have any price gaps, as they are "hidden" by this type of charting. The weakness in STX is still visible, and the potential support in the upper $30s is too.
Bottom line: The key question is where does STX go from here? We could see prices rebase in the $43 area and the rally resume, or we could see further selling pressure and a new low close for the move down. If you are long STX, I would raise sell-stops to a close below $41. If you have no position I would just stay on the sidelines for now.