PDCO (Friday Closing Price - 20.84)

PDCO generated a short-covering rally, during the last 3 months, in conjunction with the indexes. Nonetheless, the stock has never shown the kind of strength the indexes have shown and 5 weeks ago, prior to any downward action in the indexes, began to show weakness. The chart formation presently in place (inverted flag) seems to suggest that further downside action is likely.

In addition, PDCO has been in a very evident downtrend since 2005 (way before the indexes got into a downtrend) and the chart has not shown any evidence whatsoever that the downtrend may be over. With the probability of further downside in the indexes, this stock seems to be one of the prime candidates for a short position.

On a weekly closing basis, resistance is decent at 21.60 and strong at the most recent high close at 23.08. On a daily closing basis, resistance minor to decent at 21.17, and strong at 21.60 from the 200-day MA, as well as from a strong previous daily closing high. On a weekly closing basis, support is minor at 20.46, and strong between 19.90 and 20.09 from a double bottom at that price. Below that level support of consequence is not found until the 17.75-18.00 level is reached. On a daily closing basis, support is minor at 20.39 and strong at 19.77 from two previous lows, as well as from the 100-day MA.

Five weeks ago, PDCO generated a gap down opening from 22.23 down to 21.26, as well as a 24-hour move from a high of 23.01 to a low of 19.91. The drop occurred because of a lower than expected earnings report. Two weeks after that initial drop, the stock was able to test successfully the gap area with an intra-day rally up to 21.41. During the last 4 weeks the stock has built an inverted flag formation with the flagpole being the 23.01 high to the 19.66 low and the flag the trading range between 19.66 and 21.41. A break below the 19.66 level projects a move down to 18.06.

In addition, the stock has the 200-day MA at 21.39, giving the stock additional resistance of consequence.

Sales of PDCO between Friday's closing price of 20.84 and 21.26, and using a stop loss at 21.51 and an objective of 18.00, offers at least a 4-1 risk/reward ratio.

My rating on the trade is a 3.75 (on a scale of 1-5 with 5 being the highest probability).

My name is Tony and I am a chartist. I have been trading for close to 30 years. In the 80's I was a broker/trader/analyst for Merrill Lynch, Dean Witter, and Pru-Bache.

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