Chart of the Week – SanDisk (July 15, 2007)

This week, let’s look at SanDisk (SNDK).  SanDisk peaked at $80 back in early 2006.  Since then, this flash memory manufacturer has been fodder for the bears, who took the stock down more than 50% until it bottomed in early March at almost $35.

Let’s look at the daily and weekly charts to see some technical analysis in action, and to also get an idea of where the next buy point might be.

Notice how the stock had been trading sideways along $46 resistance between late-March and mid-June.  But once the stock broke out above $46, it quickly tested that breakout just a few days later with a one-day pullback to support.  The following day’s rally above $48 was a good sign that buying pressure would be sufficient to sustain the breakout.  Over the next few weeks, SNDK continued to trend sideways as profit taking met buying interest.  And if you didn’t buy the stock during the congestion period, the next buy signal was on the recent breakout above $50.  So where are we now?

Let’s look at the weekly chart for that.

This weekly chart defines the potential reward on this stock, with some pretty solid resistance looming at around $60.  Now, the stock has not traded at that level in almost 9 months; but that resistance is sufficiently close to provide a logical selling point.  So I’d look for just another $5 or so at the most in this current breakout before the stock pauses for a breather.

Try zooming in to a short timeframe (like the daily chart) to get a sense of exactly where you should take action.  But by zooming out to see the stock through a wider lens (like the weekly chart), you’ll get a better sense of the risk-reward profile.

Note: I am teaching a series of weekend trading workshops over the next few months.  For more information, click here.

Dan Fitzpatrick
StockMarketMentor.com