Medtronic Looks Vulnerable to a Bigger Decline

 | Sep 13, 2017 | 12:57 PM EDT
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Medtronic PLC (MDT) has been correcting to the downside since early July in what might be part of a larger distribution pattern (a.k.a. a top pattern). The charts are not screaming "sell" but they have weakened and prices could decline further if nearby support is broken.

Let's take a look at how things are shaping up for this medical technology company.

In this daily bar chart of MDT, above, we can see a rally from the start of the New Year to a peak in March. This might be the "left shoulder" of a top pattern. We cannot tell if volume expanded on this first rally, but we can see that the On-Balance-Volume (OBV) line rises in February and part of March. We see a second leg to the upside from April through June and again the OBV line rises and it just barely makes a new high. The July-August decline takes prices longer and lower than the March-April pullback.

Breaking the April lows around $80 is a sign of weakness to me. There are other signs or clues that suggest MDT is weakening. Prices break below the 50-day moving average line in July and the slope turns bearish in early August. MDT breaks the flat 200-day line at the end of August. Prices have recently turned back above the 200-day line but this rebound may fizzle as the OBV line has had only a very modest rise.

If MDT is an attractive purchase, the desire to accumulate shares is not showing up in the movement of the OBV line. The Moving Average Convergence Divergence (MACD) crossed to the upside below the zero line for a cover-shorts buy signal.

In this weekly bar chart of MDT, above, the topping pattern we see on the daily chart might only be part of a possible double-top pattern on a weekly chart. Prices closed below the flat 40-week moving average line for two consecutive weeks, but we have closed back above the line. Volume looks like it has declined since November 2016 while the weekly OBV line diverged from the price action in June. The weekly MACD oscillator crossed in July to a take-profits sell signal. The oscillator is close to crossing below the zero line for an outright sell signal.

In this Point and Figure chart of MDT, above, we see a failed breakout at $88.19 followed by a decline. A new low for the move down at $78.26 could open the way to a bigger correction down to $69.14 on this chart.

Bottom line: The charts and indicators on MDT suggest that prices could give back all the gains for the year. This might be too bold of a forecast, but a close below $79 is likely to precipitate further declines. It will take a rally above $85 on strong volume to make the daily chart look better.

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