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Overextension in HPIL Holdings Warns of Weakness in the Uptrend

After exceptionally strong gains on Thursday, rising 71%, shares in HPIL holdings had a very mixed day on Friday, with extreme intraday volatility and the stock ultimately closing at the opening price. Friday's price action, during which the high was at one point over 50% higher than the day's low, had made no progress in either direction by the closing bell. Friday's doji candle signals uncertainty and indecisiveness among investors, which is not encouraging for bulls. See figure 1.

Figure 1

The daily chart in figure 1 has an envelope indicator superimposed which plots the 20 period SMA in red, and the 200% overextension band in grey. Notice that previous occasions when price has tested or exceeded the upper band have coincides with reversals or pullbacks in price. Friday also saw a test of the upper band, and already produced a significant pullback intraday. Is there more downside movement to come? Possibly.

Note also the spike in volume during Thursday's and Friday's (the two most recent days) trading sessions. Both exceeded the extreme volume threshold shown in purple. All previous occasions where volume spiked above that level coincided with peaks in price, so it's very possible that we're looking at another peak forming now.

Finally, consider the RSI shown in the window below price. It is exhibiting bearish divergence where the RSI is making lower peaks while price is making higher peaks. This is another sign of overextension, warning that the upside momentum is dissipating, and a correction may be imminent.

There are good grounds to support a bearish view at this time, supposing that the advance became overextended and a downside correction of some degree is due. That being said, note that the price is already more than 30% off the intraday high, a substantial fall indeed. It remains to be seen whether there is more downside to come.

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