The stock of this online travel service provider (ASX: WEB) has peaked yesterday at $1.67 (point X on the chart). This means that the stock soared by 40% in one month as the stock was trading at $1.20 in early August.
It actually bounced after it reached an important support line which has been active since last November. This support level is an ascending slope that goes through higher lows regularly posted for the last 10 months (points E, F, G, H and I). Only an intraday “false break” triggered a bad signal when it cleared this support on July 20 (point B).
You probably reckon that the current price is not an ideal level to buy the stock. After a move of 40% up, it is likely that it will correct soon. Because the level of $1.67 corresponds to a previous high (point C, closing price) posted in April 2008, this suggests a potential “double top” technical pattern. In other words, short-term traders that took advantage of the quick double digit gains generated recently may take profits and deleverage their positions on key technical points.
Have a look at the Relative Strength Index (RSI): it shows that the stock has been overbought for the last 3 weeks. The technical Momentum index has reached unprecedented high levels.
On the upside: if the stock continues its rally, the expected move is limited. Because of the current overbought configuration, it’s unlikely that the stock will overcome the historical high of $1.83 (point A, which has been posted in November 2007). That’s less than 10% higher.
On the downside: the target for a pull-back move is clearly the level of $1.45. This level corresponds to two previous highs (points D and J, posted in September last year and in May this year) that would probably become a new low.
