International Paper Consolidates At Support

03/03/05 03:07:49 PM

by Arthur Hill

After a capitulation, International Paper found support near its prior low, and the current consolidation holds the key to the next move.

Security: IP
Position: Hold

While its colleague Weyerhaeuser (WY) is trading near its December highs and the materials sector is showing good relative strength, International Paper (IP) is lagging after a decline back to support from its October low. Downside volume was above average in January and expanded considerably in February (blue oval). The high volume and sharpness of the decline are indicative of a selling climax. Indeed, after this high-volume decline, the stock suddenly stabilized around 37 and consolidated.

A bullish candlestick reversal and high upside volume solidify support. The stock formed a bullish engulfing pattern (green oval) and advanced three days on high volume (green arrow). This short-term bullish reversal pattern requires confirmation and the extension above 38 validates the pattern as more than a one-day wonder. At the very least, this reversal further reinforces support. A low volume advance would not be taken seriously, but a high volume advance shows big interest at support and increases the chances of this level holding.

Figure 1: International Paper. IP is lagging after a decline back to support from its October low.

Graphic provided by: MetaStock.

Graphic provided by: Reuters Data.

While there is clearly support and a short-term candlestick reversal, the stock remains short of a breakout. The blue trendline extending down from early January and resistance from broken support define the downtrend at 38.7. The stock is currently challenging this trendline, but remains well short of a breakout at 38.7. A move above this key resistance level would solidify a short-term reversal and argue for further strength to 40.5 and then 42.5. Should the stock fail at resistance AND move below the late February low (37), a continuation of the January-February decline would be expected.

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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International Paper Consolidates At Support

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