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FLAGS AND PENNANTS


UTX Consolidates Near Resistance

11/30/04 09:56:00 AM
by Arthur Hill

The trend for United Technologies (UTX) is up, and the recent pause should be considered a rest within this ongoing uptrend.

Security:   UTX
Position:   Hold

Even though UTX is meeting resistance from its January 2004 high (about 98), the multiyear uptrend has yet to be proven otherwise. First, the stock remains well above the trendline, extending up from September 2001. Second, broken resistance around 80 turned into support with a successful test in May 2004. Third, the stock is challenging resistance and poised to forge a new 52-week high.

The odds of a breakout appear high as a bullish continuation pattern has emerged. After a sharp advanced above 95, the stock formed a falling flag. Bullish flags slope down after advances and bearish flags slope up after declines. This flag is clearly a bullish consolidation, and upside resolution is expected.

Figure 1: UTX. United Technologies is up, and the recent pause should be considered a rest within this ongoing uptrend.
Graphic provided by: MetaStock.
Graphic provided by: Reuters Data.
 
Even though further upside is expected, it is prudent to wait for confirmation. A move above the upper flag trendline and flag high (98.25) would provide bullish confirmation and project further strength to around 106. Flags are said to fly at half-mast, and this implies a continuation move that would be equal to the initial advance.

The current setup is bullish, but traders should also be prepared for the unexpected. A failure to break out or a failure to hold a breakout and a move below support from broken resistance at 96 would negate this bullish setup.



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
Company: TDTrader.com
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E-mail address: arthurh@tdtrader.com

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