Does Arm Have the Strength to Avoid Another Correction?

Arm Holdings ARM is the world's leading semiconductor IP company. In my April 17 review of ARM I raised the alarm to "Avoid the long side of ARM as a 'washout' to the $75 area is possible in the weeks ahead." ARM only declined to $85 before recovering.

Let's check out the charts and indicators again as we could be poised for yet another selloff.

In the updated daily bar chart of ARM, below, I can see that prices surged northward from its mid-April "V" bottom. The shares have doubled in a very short time period and this can cause a profit-taking reaction. ARM trades above the rising 50-day moving average line. We don't have enough price data yet to plot the 200-day line. 

The trading volume has not expanded on the recent rally and that is a potential problem The On-Balance-Volume (OBV) line has moved sideways since March and has made a bearish divergence with prices making new highs but the indicator failing to do so. 

The 12-day price momentum study in the lower panel shows weaker reading in June versus February even though prices made a higher high.

In the weekly Japanese candlestick chart of ARM, below, I can see a potential 8-10 record highs top reversal. Two weeks ago I saw a large doji pattern but we need to see a bearish (red) candle this week to confirm a top reversal. 

Trading volume was disappointing on the rally and the 12-week price momentum study also shows us a bearish divergence like the daily chart above.

In this daily Point and Figure chart of ARM, below, I can see a potential downside price target in the $123 area.

In this weekly Point and Figure chart of ARM, below, I can see a price target of $182 but a trade at $148 could start to weaken this chart.

Bottom-line strategy: Traders who may long ARM should reduce their exposure and or raise sell stops.

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