A Large Broadening Pattern on Snyopsys Bears Watching - Limit Your Risk

Snyopsys (SNPS) was favored by Jim Cramer during the 'Lightning Round' of the popular Mad Money program Tuesday night. Let's check out the charts of this advanced silicon chip maker.

In this daily bar chart of SNPS, below, we can see a steep selloff from September to the end of December followed by a steep recovery rally. Last month SNPS rallied above the rising 50-day and the bullish 200-day moving average lines.

The daily On-Balance-Volume (OBV) line shows an interesting pattern. The OBV line declines with prices from September to early October - more aggressive selling fits the price decline. The OBV line moves sideways to late December and does not confirm the price decline. Now the rise in the OBV line from late December is okay but seems a little weak compared to the price rise.

The Moving Average Convergence Divergence (MACD) oscillator crossed the zero line last month for an outright go long signal. The indicator is still bullish.

In this weekly bar chart of SNPS, below, we can see (or imagine) a large broadening pattern. Broadening patterns can be continuation patterns which would be bullish or they can be a reversal pattern or bearish. Prices trend sideways from late 2017 with higher highs and lower lows in an expanding pattern like the bell of a trumpet or other brass instrument. Prices are above the rising 40-week moving average line now but we can see several swings above and below it.

The weekly OBV line shows a positive trend the past three years but recently it has not made a new high for the move up even though prices are close to a new high. This isn't quite a bearish divergence but it bears watching.

The MACD oscillator is crossing the zero line now for a new buy signal.

In this Point and Figure chart of SNPS, below, we can see an upside price target of $117.77, but we would also like to see a trade at $103.41 to refresh the uptrend.

Bottom line strategy: Will the uptrend continue or could we see a reversal to the downside? I am not certain but if I went long I would risk a close below $97.

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