UPS Starts Outperforming

03/08/06 09:04:16 AM

by Arthur Hill

UPS ignores market weakness with a breakout on good volume.

Security: UPS
Position: Accumulate

UPS recovered from a down gap in early February and broke resistance in March to usher in an uptrend (Figure 1). I featured UPS on February 1, and the stock broke support a few days later. It seemed that my bearish prognosis was bearing fruit with the gap down, but the stock found support at the 200-day simple moving average (SMA) and recovered with a strong bounce in mid-February. The move occurred on good volume and met resistance around 75. After a falling flag consolidation (magenta trendlines), the stock continued higher with a breakout on good volume the last three days.

FIGURE 1: UPS. UPS broke resistance in March to begin an uptrend.

Graphic provided by: MetaStock.

Graphic provided by: MS Quotecenter.

This breakout is even more impressive when you consider that the Standard & Poor's 500 was down the last three days. The top indicator compares UPS to the S&P 500 with the price relative (UPS/SPX). The price relative trended lower until early February and then formed a higher low in early March. With a surge over the last three days, the indicator broke resistance, and this shows that UPS is starting to lead the S&P 500.

There are three bullish parts to this story. First, UPS recovered from the February support break and gap down. Second, the stock broke resistance with an advance over the last few weeks. Third, the stock is outperforming the S&P 500 and shows good relative strength. I would now consider the breakout a continuation of the October-November advance and project further strength to around 85. A failure to hold the flag breakout and a move below the early March low would be a warning to the bulls. A break below the February low would put the downtrend back on track.

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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