Genentech Firms Amid Market Weakness

06/13/06 01:26:47 PM

by Arthur Hill

The major stock indexes got clobbered in May and June, but Genentech held firm and showed signs of accumulation.

Security: DNA
Position: Accumulate

On the price chart (Figure 1), Genentech (DNA) has consolidated to around 80 since early April. The stock bounced off support at 75 to 76 four times and hit resistance at 83 to 84 twice. In addition, there is a long trendline extending down from early January that confirms resistance around 83 to 84. A move above 84 would break the consolidation and the trendline to reverse the current downtrend.

FIGURE 1: GENENTECH. What are the odds of a breakout? We can see a failed one back in mid-March (gray box).

Graphic provided by: MetaStock.

What are the odds of a breakout? Looking back at the last consolidation, we can see a failed breakout in mid-March (Figure 1, gray box). DNA broke the January trendline with a big surge on high volume, but these gains failed to hold and the stock moved to new lows in early April. There was also a high-volume surge in May that broke the March trendline and exceeded the May high. This too looked bullish, but the stock retraced back to support in early June.

FIGURE 2: GENENTECH AND THE ACCUMULATION-DISTRIBUTION LINE. The A-D line surged to a new high at the end of May (gray oval).

Graphic provided by: MetaStock.

Support is holding for now, and I see signs of accumulation. First, a look at volume shows that upside volume (black bars) is outpacing downside volume (red bars). In addition, the accumulation-distribution line held support throughout 2006 and surged to a new high at the end of May (Figure 2, gray oval). It is now up to the stock to confirm accumulation with a breakout at 84. Such a move would reverse the downtrend and target an advance back to the January high around 100.

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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