Tiffany: A Technical Flaw Questions the Clarity of the Chart

The price action in shares of Tiffany (TIF) over the past two months has repeated a pattern that formed at the end of last year, and which resolved with this year's rally up to the March highs. While the pattern is similar, the technical indications are dissimilar and suggest a different interpretation of the price action, one that contends a top may be in place. In November last year a symmetrical triangle pattern began forming on the daily chart which resulted in a breakout in February, and the rally up to the March high this year. As the pattern progressed and price compressed between the converging trendlines, the momentum indicators were predictably flat, but the money flow indicators had turned positive. The accumulation/distribution line crossed above its signal average early in the year, followed by the Chaikin money flow indicator moving into positive territory. This sharp swing in buying interest powered the initial breakout and the subsequent rally.

A very similar price pattern began forming in March this year and, depending upon how you draw the lines of support and resistance, it either resembles another symmetrical triangle pattern or a head and shoulders topping formation, and there are several reasons for the bearish interpretation of the price action. A series of large dark candles positioned under the 50-day moving average formed the right shoulder of the head-and-shoulders pattern, and they have been testing neckline support. Daily moving average convergence/divergence, which is overlaid on a weekly histogram of the oscillator, dropped below its center line on both time frames last month, suggesting waning price momentum. The glaring technical difference between the two patterns is the money flow readings, which were positive for the month prior to the first pattern breakout, but currently, are well into negative territory reflecting a loss in the investor confidence and potential institutional distribution. The accumulation/distribution line crossed below its signal line at the end of March, followed by the Chaikin money flow indicator moving below its center line. Both of these indicators have continued to track lower and under their 21 period averages.

The stock price is nearing the apex of the pattern and the question of whether or not the pattern is a bullish or bearish one should be answered soon. Money flow indications, however, suggest an intermediate term top is in place and Tiffany is a speculative short sale at its current price.

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