Garmin Ltd. (NASDAQ: GRMN)

Garmin Ltd., together with its subsidiaries, designs, develops, manufactures, and markets global positioning system (GPS) enabled products and other navigation, communication, and information products for the automotive/mobile, outdoor, fitness, marine, sailing and yachting, and general aviation markets worldwide. The company offers a range of automotive navigation products, and various products and applications designed for the mobile GPS market; GPS enabled handheld products for hunters, hikers, geocachers, outdoors enthusiasts, cyclists, and golfers; dog tracking systems; tracker systems; and training assistants for athletes. It also provides handhelds, network products and multifunction displays, fixed-mount GPS/chartplotter products, instruments, fish finders, radars, autopilots, VHF radios, marine networking products, and sounder products. In addition, the company offers GPS-enabled navigation, VHF communications transmitters/receivers, multi-function displays, electronic flight instrumentation systems, automatic flight control systems, traffic advisory systems and traffic collision avoidance systems, terrain awareness and warning systems, instrument landing system receivers, surveillance products, audio panels, and cockpit datalink systems.

To review Garmin’s stock, please take a look at the 1-year chart of GRMN (Garmin, Ltd.) below with my added notations:

1-year chart of GRMN (Garmin, Ltd.)

For the last (9) months GRMN has traded within a common pattern known as a rectangle. Rectangle patterns form when a stock gets stuck bouncing between a horizontal support and resistance. A minimum of (2) successful tests of the support and (2) successful tests of the resistance will give you the pattern. GRMN’s rectangle pattern had formed a $43 resistance (red) and a $36 support (green). Earlier this week the stock broke it’s support, which was also a new 52-week low.

Chart patterns can also provide price targets. Simply take the height of the overall pattern and add or subtract that amount to or from the breakout or breakdown point to get the minimum price objective. For example, since the rectangle pattern for GRMN is $7 high ($43 – $36), GRMN should fall to a minimum of $29 ($36 – $7) now that it has broken lower. Chart pattern price targets are certainly not guarantees, but they are often fulfilled.

The Tale of the Tape: GRMN broke the bottom of its rectangle pattern. The stock should be moving lower, so a short trade could be place on any rallies up to the $36 level. A break back above $36 would negate the forecast for a move lower.

Before making any trading decision, decide which side of the trade you believe gives you the highest probability of success. Do you prefer the short side of the market, long side, or do you want to be in the market at all? If you haven’t thought about it, review the overall indices themselves. For example, take a look at the S&P 500. Is it trending higher or lower? Has it recently broken through a key resistance or support level? Making these decisions ahead of time will help you decide which side of the trade you believe gives you the best opportunities.

No matter what your strategy or when you decide to enter, always remember to use protective stops and you’ll be around for the next trade. Capital preservation is always key!

Good luck!

Christian Tharp, CMT