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BOLLINGER BANDS


Mind The Gap For Autozone

01/26/05 08:27:22 AM
by Arthur Hill

Autozone has held up pretty well lately, but some bearish candlesticks and a gap may spell trouble ahead.

Security:   AZO
Position:   Sell

Autozone (AZO) moved above 90 in mid-December and then started to consolidate. The Bollinger Bands have been overlaid and are trading relatively tight. The upper indicator shows the Bollinger Band width and is trading at its lowest level in almost five months. These volatility-based bands expand as the range of trading increases and contract as the range decreases. The theory is that tightening ranges signal a consolidation and often foreshadow a significant move. For a clue on direction, we can turn to the candlesticks and price chart (Figure 1).

The stock formed two shooting stars and cannot push above 93. The first one ended the year and the second began the year (red arrow). These candlesticks reflect intraday buying pressure that failed to hold. The bulls were able to push prices higher in the early going, but the bears ultimately regained and forced a weak close. Even though the stock fell below 90 on January 4, a trading range unfolded to keep prices firm and the shooting star on hold.

Figure 1: Autozone. The stock formed two shooting stars and cannot push above 93. The first one ended the year and the second began the year (red arrow). These candlesticks reflect intraday buying pressure that failed to hold.
Graphic provided by: MetaStock.
Graphic provided by: Reuters Data.
 
More recently, the stock gapped down on January 20 (blue arrow) and found support right at the trendline extending up from the September lows. There is also support around 89 from the late December and early January lows. This support level is confirmed by the lower Bollinger Band and holds the key to the current uptrend. A move below 89 would break trading range support, break the September trendline, and signal a continuation of the January 20th gap down. This would be enough to take a bearish stand and expect further weakness. Should support at 89 hold, a move above 91.5 would fill the gap and signal a continuation higher.



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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Address: Willem Geetsstraat 17
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Website: www.tdtrader.com
E-mail address: arthurh@tdtrader.com

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Date: 02/04/05Rank: 5Comment: 
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