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Amgen Enters Potential Reversal Zone

07/01/04 10:31:13 AM
by Arthur Hill

A price channel, retracement and Elliott count all point to a potential reversal zone for Amgen (AMGN).

Security:   AMGN
Position:   N/A

The current pattern at work looks like a falling price channel. The upper trendline was drawn first and the lower trendline was then drawn parallel. This lower and parallel trendline can be extended to project support and potential reversal zones. At present, the lower trendline extends to the low 50s and the recent decline has slowed in this area.

Graphic provided by: MetaStock.
The decline over the last few months looks like an ABC correction. Wave A extended from 72.37 to 57.1 (15.27 points or 21%), Wave B from 57.10 to 66.88 and Wave C is currently underway. Wave C is often equal to Wave A and this would project a Wave C decline to the low 50s (66.88 - 15.27 = 51.61 or 66.88 x (1 -.21) = 52.84). The first target (51.61) for Wave C is based on a 15.27 point decline and the second target (52.84) is based on a 21% decline.

In addition to the falling price channel and ABC count, the stock has retraced 50% of its prior decline. This is a normal amount for a correction and traders should be on alert for a reversal once a stock enters this area.

For early signs of strength, traders can turn to the stochastic oscillator. The stochastic oscillator (14,3,3) is trading below 20 and oversold. Notice that the stochastic oscillator moved below 20 in April and remained oversold since. Stocks can become oversold and remain oversold. A move above 20 would suggest that this oversold period has ended and a period of upside may begin.

Arthur Hill

Arthur Hill is currently editor of, 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 and the main contributor to the ChartSchool.

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Date: 07/06/04Rank: 5Comment: 

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