A reader requested an analysis of the Waddell and Reed Financial (WDR) charts.
The first weekly chart shows the recent October low as a 50% retracement of the long range 2008 low and the 2014 high. This Fibonacci series is significant because, as the second weekly chart shows, the 62% retracement level is currently intersecting with other points of resistance which can be seen more clearly on the daily timeframe.
On the daily timeframe the 62% retracement level, the downtrend line drawn off the 2014 highs, and the 50 day moving average form a zone of resistance in the $49.40 to $51.00 area. In October, the Relative Strength Index and the Money Flow Index, a volume-weighted relative strength measure, moved out of oversold conditions, and Moving Average Convergence/Divergence made a bullish crossover. The stock has since traded in two series of elevated channel consolidations, and the increasingly tight price compression has taken the Bollinger Band range, a measure of standard deviation around price, within the Keltner Channels, a measure of standard deviation around Average True Range. This is a classic “squeeze” situation, one which can precede volatile moves.
The long to intermediate term view of the stock is that it is in a long term downtrend, moving below a clearly defined downtrend line and a declining 50 day moving average. While the short term trade set-up suggests a potentially volatile move higher, there is significant resistance just overhead. I would look to see several days of trading above the intersection of the 50 day moving average and the 62% retracement level, and ideally a close in upper candle range that penetrates the 2014 downtrend line, before taking a speculative long position. Even if those conditions were met, however, they might be part of a basing process and the stock price could revisit recent lows at some point, so a tight well-disciplined percentage stop would be required.