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TECHNICAL ANALYSIS


Why SunTrust is Worth a Look

07/13/04 12:15:23 PM
by Kevin Hopson

SunTrust is coming up on key resistance but the stock may have sufficient buying pressure to overcome this.

Security:   STI
Position:   Hold

SunTrust Banks, Inc. (STI) reported better-than-expected second quarter earnings on July 12, allowing the stock to rally 2.5 percent for the day. In doing so, SunTrust proceeded to close above its 10-day, 20-day and 50-day moving averages. The stock also breached the top of its current trading range (gray line). However, if you look at the year-to-date chart, you will notice that SunTrust is coming up on significant resistance. For example, January's downtrend line (black trend line) has converged around the $66.00 level, while May's unfilled gap (dotted red line) comes into play around the $66.75 level.

If SunTrust can overcome key resistance in the $66.00 to $66.75 range, the stock could see a more profound breakout. More specifically, SunTrust could see a minimum move up to the $68.00 to $70.00 range. This price target was calculated by taking the number of times that SunTrust has tested the top channel line in alternate sequence, multiplying this number (2) by the width of the trading range ($65.75-$63.50=$2.25) and adding this figure ($2.25x2=$4.50) to the bottom ($63.50+$4.50=$68.00) and top ($65.75+$4.50=$70.25) channel lines. This price target assumes that SunTrust will break out of its trading range during the current test of the top channel line.

Graphic provided by: Stockcharts.com.
 
In the meantime, market sentiment towards the stock continues to be bearish. For example, short interest was 7.8M shares as of June 7, which was up 81 percent from May. This equates to a short interest ratio of 6.5x based on average daily volume of 1.2M shares over the past three months. Additionally, 83 percent of the analysts that cover SunTrust currently have a hold or sell rating on the company. This indicates extreme pessimism towards the company, meaning that SunTrust has a substantial amount of potential buying pressure to push it higher. As a result, I would keep a close eye on the price levels I mentioned and consider going long on a break of resistance here.



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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