With the S&P 500 SPDR (ARCA:SPY) pushing to new highs, these stocks have failed to follow. The failure for these stocks to create new highs, while the market is doing so, has created a topping pattern and signals these stocks are losing steam. While the topping patterns are a potential warning signal to those in long positions, only the breakout direction from the pattern will indicate whether the uptrends in these stock are over, or if this is just a consolidation on the way to bigger gains.
Agilent Technologies (NYSE:A) hit a high of $53.47 on September 19, but was unable to penetrate that high on a mid-October attempt. This has created a sideways price channel and a potential double-top. The double-top is confirmed if the price drops below $49.39, signaling a decline to the $47 to $46 region. A drop below the small rising trendline, currently intersecting at $50.65, forewarns of a potential breach of the channel. The overall trend is still up though, so a rally beyond $53.47 indicates the channel was just a consolidation, and the price is continuing higher.
E*Trade Financial (NASDAQ:ETFC) is an a triangle formations, which could also be viewed as a potential double-top given the stocks inability to climb above the September 18 high at $17.73. If the price falls below the small rising trendline at $16.50 it warns of a likely re-test of the October low at $15.54. If $15.54 is breached expect a decline into the $14 to $13.50 region. If the price rallies beyond the $17.73, the uptrend is still intact and likely to test the $20 area.
CIT Group (NYSE:CIT) has had a strong year, up more than 25%, but hasn't made any upward progress since early August. $51.52 set in August remains the high, despite a recent test of this level in mid-October. This price actions has created a large range, primary contained between the high and $47. A drop below $46.78 confirms a double-top pattern and indicated a slide to $44 to $43. A drop below the rising trendline at $48 gives early warning of this decline. A rally above $51.52 signals a further advance toward $55 to 56.
Lions Gate Entertainment (NYSE:LGF) had more than doubled in price this year, but is unable to push higher since setting the $37.81 high in September. Two subsequent rallies have failed to break the high, and a channel or triple-top formation is in play. If this is a consolidation, the channel lows at $33.13 shouldn't be significantly penetrated; if they are, it indicates a further slide toward $30. If the $33 regions holds on a declines, and the price rallies back above $37.81, the uptrend remains in effect with a target of $40 to $41.
The Bottom Line
When compared to the S&P 500 SPDR, these stocks have shown relative weakness as of late, unable to push past their former highs. This is a potential warning to the longs, indicating the major upside run in these stocks is waning. A break below the support levels in each stock confirms a topping pattern and a likely larger decline. Short-term traders can look for short selling opportunities here, but should tread carefully given the possibility that these formations are actually consolidations in uptrends that may continue.