Coke Finds Some Fizzle

02/28/06 02:29:48 PM

by Arthur Hill

Coca-Cola has been lagging for a while, but things are starting to look up with price and volume breakouts.

Security: KO
Position: Buy

On the price chart (Figure 1), Coca-Cola (KO) formed a falling price channel over the last six months and broke above the upper trendline with a strong move over the last two weeks. What makes this move strong? First, the stock recovered from a sharp decline in mid-January (blue oval). This decline looks like a washout and the ability to recover all the way back to resistance shows strength. Second, the stock pulled back in early February and held above the January low. Third, the surge over the last two weeks broke through resistance with above-average volume (gray oval).

FIGURE 1: COCA-COLA. KO formed a falling channel over the last six months and broke above the upper trendline with a strong move over the last two weeks. What's going on?

Graphic provided by: MetaStock.

Graphic provided by: MS Quotecenter.

Momentum confirms recent strength with a moving average convergence/divergence (MACD) breakout. The stock only managed to break above the January high, but MACD managed to break to a six-month high. This tells us that momentum is the strongest it's been in six months. In other words, there is more to this rally than any rally since July–August and we should take notice.

The accumulation-distribution line also confirms the recent breakout. In fact, this volume-based indicator led the stock with a breakout in early February. The indicator bottomed on December 31 and was not even affected by the mid-January dip below 40. This shows accumulation on the bottom and the indicator broke above its November high this month. This shows strong buying pressure and points to higher price in the coming months.

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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Coke Finds Some Fizzle

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