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BOLLINGER BANDS


DuPont Gears Up For A Move

05/26/05 11:02:26 AM
by Arthur Hill

DuPont gears up for a move, and we should be ready for it.

Security:   DD
Position:   Hold

Taking a step back, it appears that a head-and-shoulders reversal is evolving with neckline support just above 45. The left shoulder formed in December 2004, the head in March, and the right shoulder over the last two months. However, it would take a move below neckline support (45) to confirm this pattern. Without such a move, the pattern is unconfirmed and support is holding. Since March, the pattern looks like a sharp decline followed by a consolidation (Figure 1). Any way you slice it, the future of DuPont depends on the resolution of this consolidation or right shoulder.

Figure 1: DuPont. It appears that a head-and-shoulders reversal is evolving with neckline support just above 45.
Graphic provided by: MetaStock.
Graphic provided by: Reuters Data.
 
The Bollinger Bands have tightened to the point we can expect a move sooner rather than later. The Bollinger Bands are overlaid with the price plot, and the top indicator shows Bollinger Band width. These bands contract as volatility contracts, and such contractions often foreshadow a directional move. The blue dotted lines show what happens when the Bollinger Band differential dips below 0.06. Note that the stock moved each time. With this differential again below 0.06, a move can be expected to commence soon.

Predicting the direction of a consolidation break is tricky business, and it would be prudent to wait for the break. A move above 49 would reverse the prior decline and argue for higher prices. The first upside target would be the February high around 55. A move below 45 would signal a continuation of the prior decline and argue for lower prices. This would also confirm the head-and-shoulders pattern, and the downside target would be around 35. Ouch.



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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Date: 05/26/05Rank: 4Comment: 
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