This is a segment of a column that was originally published on RealMoney on April 30 at 12 p.m. EDT. It's being republished as a bonus for TheStreet.com readers.
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NYSE Euronext completed its well-publicized trans-Atlantic merger in early April. Active speculation ahead of the event peaked in November, with shares hitting an all-time high at $112. Notably, accumulation peaked two months later, even though price couldn't rally above the earlier high.
Before the Euronext venture, the stock benefited from John Thain's proactive leadership after the Dick Grasso pay fiasco and planning for the new NYSE hybrid market. But troubling price action since January points to a growing paranoia that the exchange waited too long to transform itself while its rivals moved into position for the kill.
Strong selling pressure erupted in mid-January, triggering a 30-point decline over the next two months. The stock bounced at the 200-day moving average in March and started a slow recovery that topped out at exactly the same time the merger concluded. The ensuing sell-the-news reaction accelerated last week after the Goldman downgrade.
On-balance volume shows active distribution over this period that's far more severe than the underlying price-decline. In fact, the indicator is now sitting at the lowest relative levels in the stock's history. It certainly looks like retail and institutional shareholders have been jumping ship, concerned about growing competition.
But it's premature to forecast a larger-scale decline until price breaks the 200-day moving average decisively. Note how it settled back at this support level last week, after the March bounce ran out of steam. Underlying distribution suggests a breakdown is imminent, but it makes sense to just wait and watch until that happens.
What would a breakdown look like? I'd expect to see a wide-range selloff day that cut through the 200-day moving average on volume between 10 million and 20 million shares. This would signal an active downtrend that could drop price to $70 by midsummer.
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Alan Farley
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