Amgen Testing Key Support

11/03/04 01:35:02 PM

by Arthur Hill

Amgen failed to break above an important trendline in September, but the recent support test looks successful and this could foreshadow a breakout.

Security: AMGN
Position: Buy

On the weekly chart, Amgen (AMGN) retraced 62% of its prior advance with a falling price channel over the last 12 to 15 months. Both the pattern and the retracement are typical for corrections (corrective move). Even though the move looks corrective, a breakout is still required for a bullish signal and a continuation of the prior advance (impulse move).

The stock bounced off support in the low 50s twice (green arrows). In between bounces, the stock formed a reaction high at 61, and it would take a move above this level for a bullish breakout. Such a move would break the upper trendline of the falling price channel and forge a higher high. This would signal a serious increase in demand.

Figure 1: Amgen.

Graphic provided by: MetaStock.

Graphic provided by: Reuters Data.

Momentum reflects less selling pressure. Relative strength index (RSI), a classic momentum oscillator, formed a positive divergence over the last few months (blue arrows). The stock formed a lower (closing) low in October, while the oscillator held above its prior low. This shows less downside momentum on the second low and further strength above 60 would be most bullish for momentum.

A weekly bullish engulfing reinforces support and sets the stage for a breakout. After the close below 53 on October 25, the stock formed a long white candlestick the last week of October. Note that the open was below the prior close and the close was above the prior open as the long white candlestick engulfed the prior black candlestick. Further strength above the September high would confirm this bullish engulfing pattern and open the door to the larger trend reversal.

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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Amgen Testing Key Support

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