We last visited Tech Data Corp. (TECD) back in early May, and at that time we looked for higher prices. As we wrote: "TECD looks like it will move higher in the months ahead. Traders could approach the long side here risking a close below $88. The $120 area is our upside price target." Prices did move higher from early May, reaching $110 in late August before gaping sharply lower earlier this month.
The decline so far this month has done a lot of damage to the charts and indicators, so the slide may not yet be over. Let's review the charts to see what is going on with our fight-or-flight response.
In this daily bar chart of TECD, above, we can that a durable-looking uptrend from November came to an abrupt end last month. The popular 50- and 200-day moving average lines were pointed up and the daily On-Balance-Volume (OBV) even made a slight new high before a heavy volume downside gap crushed prices. In one trading session TECD gave back all the gains from February. The slope of the 50-day moving average line has turned down and the 200-day line has turned flat. The OBV line broke to a five-month low and momentum is down and not diverging from the price action. The next potential chart support on this chart is down in the $80-$75 area from November.
In this weekly bar chart of TECD, above, the price gap on the daily chart disappears because of its construction. Prices have closed below the flattening 40-week moving average line. Volume was heavy on the breakdown, telling us that traders and investors voted with their feet. The weekly OBV line moved sharply lower, telling us that sellers were aggressive. The weekly Moving Average Convergence Divergence (MACD) oscillator crossed to the downside for a take-profits sell signal. This chart shows that there is a lot of potential support (former resistance) around $80.
In this Point and Figure chart of TECD, above, we can see a long uninterrupted slide (column of "O's") this month (see the 9?). Point and Figure charts do not have price gaps. On the left side of the chart is the volume of trading at the prices indicated. The decline has put a lot of longs underwater, and if they have not yet sold they probably will feel a lot of pressure to sell. The chart shows a very bearish downside price projection of $51.92.
Bottom line: The price action for TECD last week looks like a bearish pennant formation. A bearish pennant starts with a sharp move down followed by a few days of narrow sideways price action followed by a further sharp decline. Prices already are stretched to the downside and the major averages are indicated to start trading Monday sharply higher, so a breakdown from this potential pennant may not happen. Today's price action is not crucial as the bigger picture suggest that a period of repair is needed before TECD might rally again. The $100-$110 area should not act as resistance.
