We looked at Lam Research (LRCX) last month, and we were confused as to what sort of pattern we were looking at, "Whether LRCX is a small triple top or a bullish triangle we don't know yet, but if the pattern is a triangle we should see a breakout soon, as breakouts from triangles tend to occur two-thirds to three-quarters of the way through the pattern."
It's five weeks later and we can see that prices have moved above their July highs giving us the heavy hint that the pattern was a bullish triangle, but...I added the "but" because volume did not expand on the breakout to new highs and momentum has slowed in September. So what gives? Are the charts confusing or have I lost my edge (if I ever had an edge)? Let's check the latest charts and indicators.
In this daily chart of LRCX, below, we can see that prices are above the rising 50-day moving average line and the rising 200-day line. The volume looks to be lower than normal the past four weeks which is not what a chartist wants to see as a stock goes to new highs. New highs should bring in more people from the sidelines to buy this great performing stock but it was not to be in this case. The on-balance-volume (OBV) line does improve from early August but not a breakout to new highs. In the past week or so the OBV line has weakened. The peaks in momentum are lower in September than July even though prices are higher in September than July. This is a bearish divergence but we know that divergences are not a good timing tool.
In this weekly chart of LRCX, below, we can see a parabolic-like rise in price since late 2015. Prices are above the rising 40-week moving average line. The weekly OBV line has moved higher the past three years but the 12-week momentum indicator has weakened from May to September producing a bearish divergence when compared to the prices making higher highs over the same time period.
In this Point and Figure chart of LCRX, below, we can see an upside price target of $226 but we can also see that declines to $166.72 and $161.81 will weaken the chart picture. With the heavy volume at $163.43 a move below that level will put a fair amount of longs at a loss.
Bottom line -- it is hard to find text book chart patterns in the real world, but when volume does not confirm an important breakout, my chart reading antenna are raised. Tread carefully.