TROW - Broken support points to lower prices ahead

T.Rowe Price (TROW) is a stalwart in the mutual fund industry and has a spectacular (470% increase) run since the market bottom in 2009. It has a nice dividend, is a well run company and is worth of consideration in a long-term investors portfolio. As you can see in the long term weekly chart below, the solid blue line has provided support for the many pullbacks the stock has experienced during this entire bull run. 

Zooming in to a shorter term chart view below, some interesting action is occurring.

1)      The stock has been in a period of consolidation since November of last year, oscillating between support and resistance.

2)      There is a saying that from “false breaks come big moves” and as you can see, the stock tried many times to move above the resistance line and finally broke higher in June. It had a short stay above the line, peaked in July and has fallen back below that support-resistance line. This raised the first yellow warning flag

3)      The solid blue upward sloping line that has acted as support has just recently been breached. Yellow warning flag #2.

4)      We had divergence between momentum (falling) and price (rising) at the peak in July. Yellow warning flag #3.

5)      While not ideal, the dashed black line is the neckline of a slanted head and shoulders reversal pattern and has a projected target of ~75. Yellow warning flag #4.

6)      Volume has been increasing since the July peak which confirms the bears are currently in control. Yellow warning flag #5.

So as to what this all means, I would expect to see further downside and price find eventual support around the 75 level. This level is a confluence of the H&S price objective and longer-term major support. If it gets there we’ll have to evaluate because that might provide an attractive buying opportunity.