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CHART ANALYSIS


Genuine Parts Breaks Out On Good Volume

02/12/04 09:54:00 AM
by Arthur Hill

After a long consolidation, Genuine Parts (GPC) broke resistance to confirm a bullish continuation pattern.

Security:   GPC
Position:   Accumulate

GPC advanced with a sharp move from March to May and then consolidated. The stock met resistance between 33 and 34 no fewer than seven times over the last few months. There were a number of pullbacks along the way, but the November reaction low came in higher than the August reaction low (green arrows). Although not picture perfect, the essence of the pattern is an ascending triangle and the resistance breakout signals a continuation higher. Rounding the numbers, the projected advance would be to around 38 (34 - 30 = 4, 34 + 4 = 38).

Graphic provided by: MetaStock.
 
Volume largely confirms the recent breakout. Volume surged in late January and early February as the stock advanced towards resistance. In addition, the accumulation distribution line continues its charge with a new high to correspond with the breakout. However, on balance volume (OBV) has been lagging and has yet to break above its December highs. OBV declined as the stock traded sideways and has recently begun to move higher. Further strength above the December high would confirm the indicator (OBV) with the recent breakout in the stock price.

Even though both are based on volume, OBV and the accumulation distribution line do not always move in tandem. OBV is based on closing prices only. The indicator advances (adds volume) when the close is higher than the previous close and declines (subtracts volume) when the close is lower. In contrast, the accumulation distribution line does not even consider the close-on-close change. This indicator advances when the close is higher than the mid point of the day's high-low range and declines when the close is below the mid point of the day's high-low range. Because of this calculation difference, they are complementary and can be used to confirm one another.



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.

Title: Editor
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