Inphi – Short Covering Rally Could Follow Breakout

By | November 21, 2017

Inphi Corporation (IPHI) makes semiconductors for the communications industry. Its stock price has been consolidating in a sideways pattern above support in the $34 area and below resistance in the $41 area, for the last seven months.

A bullish moving average convergence/divergence (MacD) on the weekly chart in September preceded the October bounce off the channel low, and was followed by Chaikin money flow moving into positive territory.

On the daily chart, the consolidation phase looks like a rounded bottom. The 50 day moving average has a gentle positive slope and is on course for a rendezvous with the slightly declining 200 day average.

The morningstar pattern was highlighted on our Twitter feed (@rightviewrob) yesterday. This three period pattern consists of a large down-day candle, followed by a narrow opening and closing range “doji” candle, and completed by a large up-day candle. It represents a transition in investor sentiment from bearishness-to-bullishness.

Positive price and money flow momentum indications on the weekly timeframe, combined with a bullish daily candle reversal pattern is a good technical combination.

Now add the fact that there is a 25% short interest in the stock and you have the catalyst that powers the breakout. A short-covering rally is a distinct possibility.

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