PAL Takes Some Well-Deserved R&R

06/20/03 12:39:26 PM

by Arthur Hill

After a big trendline break with big volume North American Palladium (PAL) consolidates its gains below key resistance.

Security: PAL
Position: Hold

With a big move in May, PAL broke above a 1-year trendline that had been touched three times. The more touches the more robust the trendline. Two touches makes for a tentative trendline and three or more touches makes for a valid trendline.

A visual inspection also shows that the slope is not too steep, nor too flat. To add further validity to the breakout, volume surged to the highest levels in over a year (green arrows) and the sharp move was convincing.

Figure 1: Daily chart for PAL.

Graphic provided by: MetaStock.

After the initial blast off, the stock formed a pennant consolidation just below KEY resistance at 3.7. PAL is entitled to a little R&R (rest & relaxation) after such a move and pennants provide the means. Volume declined as the pennant took shape and this reinforces the validity of the pattern. A move above the upper trendline on expanding volume would signal a continuation and project further strength to around 4.8. Pennants and flags are said to fly at half-mast. The advance from 2.2 to 3.7 (1.5) formed the "flag pole" and a move above the upper trendline would presage a reciprocal move (3.3 + 1.5 = 4.8).

Figure 2: A closer look at the daily chart for PAL.

While a break above the upper pennant trendline would be bullish, KEY support at 3.7 looks formidable and traders may wish to wait for a break above this level before turning fully bullish. Resistance at 3.7 was established with three touches in January and another in early June. A move above 3.7 would clear the way for higher prices and the next resistance level is set at 6, which is over a point above the pennant projection.

Arthur Hill

Arthur Hill is currently editor of TDTrader.com, a website specializing in trading strategies, sector/industry specific breadth stats and overall technical analysis. He passed the Society of Technical Analysts (STA London) diploma exam with distinction is a Certified Financial Technician (CFTe). Prior to TD Trader, he was the Chief Technical Analyst for Stockcharts.com and the main contributor to the ChartSchool.

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PAL Takes Some Well-Deserved R&R

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