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TECHNICAL ANALYSIS


A Trading Range For Archer Daniels Midland Co.

07/06/04 08:24:59 AM
by Kevin Hopson

Archer Daniels Midland Co. has been stuck in a 5-month trading range but converging trendlines could foretell an important move soon.

Security:   ADM
Position:   Hold

Though the long-term trend is positive for Archer Daniels Midland Co. (ADM), the stock has been stuck in a trading range between $16.10 and $17.80 since mid-February. Because trading ranges tend to be continuation patterns and the trend is up, it would be expected to break to the upside. If so, the stock could eventually make its way up to the $21.00 to $23.00 range. This assumes that the stock will test the top channel line again and proceed to break out from there. For details on how to calculate price targets, please see my prior articles on trading ranges.

However, it is never safe to assume anything, especially when it comes to the market. Often your best bet is to wait things out. If the stock can make a decisive move above the $17.80 level, it would be a signal to go long. In the meantime, there are some interesting developments on the daily chart, which could help determine which way the stock eventually moves. For example, notice how the stock has been contained within the top half of the blue pitchfork and the bottom half of the green pitchfork recently. Since the bottom green parallel line ($16.20) and top blue parallel line ($16.80) are both converging upon one another, something will have to give soon.

Graphic provided by: Stockcharts.com.
 
A move above the top blue parallel line would likely pave the way for a test of the green median line, in the $17.50 area. Also note, there is a massive amount of call open interest (over 17,000 contracts) at the $17.50 strike price. This means there will be significant selling pressure around the $17.50 level, as call sellers try to the keep the contracts out-of-the-money. On the other hand, a breach of support along the bottom green parallel line could lead to a test of the lower channel line and an eventual breakdown. If so, the blue median line would be a potential downside target in the near-term. Given all the possibilities, I would keep a close eye on these short-term price levels, as well as the bigger trading range picture.



Kevin Hopson

Kevin has been a technical analyst for roughly 10 years now. Previously, Kevin owned his own business and acted as a registered investment advisor, specializing in energy. He was also a freelance oil analyst for Orient Trading Co., a commodity futures trading firm in Japan. Kevin is currently a freelance writer.

Glen Allen, VA
E-mail address: hopson_1@yahoo.com

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