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ACCUM./DIST. CHAIKIN


Accumulation In Du Pont

11/10/04 09:00:11 AM
by Arthur Hill

Du Pont (DD), a leading chemical company, shows signs of accumulation and recently broke an important trendline.

Security:   DD
Position:   Buy

As the weekly chart (Figure 1) shows, Du Pont is not a big mover and the stock has been confined to a 15-point range over the last three years. The stock broke to new highs in January (gray arrow), but these were short-lived as broad market weakness weighed soon thereafter. The stock worked its way lower with a falling wedge (blue trendlines) the rest of the year, and volume dried up from May to October.

Despite the decline over the last several months, the accumulation-distribution line has worked its way higher. The combination of lower lows in stock and higher highs in the indicator makes for a positive divergence. In addition, the indicator moved above its April high this month for a 52-week high (red arrow). Even though the stock price declined, this indicator suggests that the stock was under accumulation.

Figure 1: Dupont
Graphic provided by: MetaStock.
Graphic provided by: Reuters Data.
 
On the price chart, things started to change in late October. The stock surged above the upper trendline of the falling wedge with above-average volume (blue arrows). Note that the weekly volume moved above the 52-week SMA and to its highest level since May. This shows increased buying pressure and increases the odds of further strength.

Even though a move to 50 is unlikely overnight, the trendline breakout, high volume, and the accumulation-distribution line all point to higher prices over the next several months. A failure around 45 and a move below 41 would negate this bullish prognosis.



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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