Procter & Gamble's Ascending Triangle

02/02/06 09:43:59 AM

by Arthur Hill

Procter & Gamble may not be the most exciting stock these days, but it is breaking out to new highs and showing leadership.

Security: PG
Position: Accumulate

On the price chart (Figure 1), Procter & Gamble (PG) formed an ascending triangle over the last few months and broke above resistance with above-average volume. The ascending triangle is a bullish continuation pattern and the breakout provides confirmation. This breakout is further validated by expanding volume and a 52-week high. It is hard to argue with a resistance breakout, a 52-week high, and expanding volume.

Based on traditional technical analysis, the upside target is to around 65. The width of the pattern (5.5 points) is added to the breakout for an upside projection (59.5 + 5.5 = 65). This is about 10% higher and could take a number of months because PG is not the most volatile of stocks.

FIGURE 1: S&P 500 VS. PROCTER & GAMBLE. While generally a low-key stock, PG is showing signs of strength.

Graphic provided by: MetaStock.

Graphic provided by: MS QuoteCenter.

The stock is also starting to show market leadership. The top chart shows the Standard & Poor's 500. In early January 2006, the index was outperforming PG as the S&P 500 moved above resistance and PG failed to break out. The S&P 500 has since fallen back and remains below its January high. However, PG broke above its January and December highs (gray ovals). Based on this recent breakout, PG appears to have the stronger chart, and this bodes well for future performance.

The breakout is young and there are two levels to watch. Should the stock extend on its breakout, this area will turn into support around 59. Second, the lower trendline of the ascending triangle and the late January low mark key support at 57. This low should hold. A failure to hold the breakout and a move below 57 would be bearish.

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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ASCENDING TRIANGLES

Procter & Gamble's Ascending Triangle

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