Major Resistance For UPS

05/05/05 02:00:29 PM

by Kevin Hopson

A confluence of resistance could imply a reversal at slightly higher prices for UPS.

Security: UPS
Position: N/A

United Parcel Service (UPS) has rebounded off of last month's low, but the stock now faces significant resistance in the $72.50 to $73.00 range. If you look at the six-month chart for UPS, you will see what I am talking about (Figure 1). For example, note how last December's downtrend line and the 50-day exponential moving average ($72.66) have both converged in this price range. In addition, the 50% retracement level from the February-April decline ($72.83) and the black median line also come into play here. Because there is a significant confluence of resistance in the $72.50 to $73.00 range, UPS could see a reversal at these prices.

Figure 1: UPS, six-month chart. United Parcel Service now faces significant resistance.

If you turn your attention to the long-term chart, there is further evidence to support this (Figure 2). More specifically, note how prices recently breached the March 2004 uptrend line, which now comes into play above the $72.00 level. Broken support tends to act as resistance, as those who bought support will be looking to sell on a test of this trendline. Also, as I mentioned before, the black median line is converging around the $73.00 level. When prices are in a downtrend, the completion of the fourth wave (or second corrective high) typically occurs along the median line of the 1-2/3 pitchfork. This means UPS should see a reversal here. If this comes to fruition, it would imply a move down to new lows (sub-$67) this year, effectively completing the fifth and final wave of the current downtrend.

Figure 2: UPS, one-year chart. Note how prices recently breached the March 2004 uptrend line, which now comes into play above the $72.00 level. Broken support tends to act as resistance, as those who bought support will be looking to sell on a test of this trendline.

Graphic provided by: StockCharts.com.

However, UPS does have something going for it. Market sentiment toward the stock continues to be overly pessimistic. More specifically, short interest was 16.35 million shares as of April 8, which equates to a short interest ratio of 5.32x. In addition, half of the analysts who cover UPS still have a hold rating on the company. Further, the stock's put/call open interest ratio for the front three months currently sits at 0.95, which is higher than 80% of the readings over the past year. As a result, there is a lot of potential buying pressure to push prices higher. In the meantime, I would keep an eye on key resistance in the $72.50 to $73.00 range. If UPS can overcome this price barrier, the bulls will find themselves in control once again. If not, the bears could take the stock down to new year-to-date lows.

Kevin Hopson

Kevin has been a technical analyst for roughly 10 years now. Previously, Kevin owned his own business and acted as a registered investment advisor, specializing in energy. He was also a freelance oil analyst for Orient Trading Co., a commodity futures trading firm in Japan. Kevin is currently a freelance writer.