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REVERSAL


A Selling Climax For MMC

06/29/06 09:33:00 AM
by Arthur Hill

A high-volume selling day at support could signal a bottom for Marsh & McLennan.

Security:   MMC
Position:   Accumulate

After a sharp move lower in October 2004, Marsh & McLennan (MMC) found support around 25 and started a trading range that remains in place (Figure 1). There is a support zone around 25–27 and a resistance zone around 33–35. The stock touched resistance at least three times and support four times. With a steady decline the last eight months, MMC is once again trading near support, and this is a good spot for a bounce.

FIGURE 1: MARSH & MCLENNAN. The trading range that began in late 2004 remains in place still.
Graphic provided by: MetaStock.
 
Turning to the daily chart (Figure 2) for some details, we can see a high-volume decline on June 27 and then a high-volume advance the following day. Volume on June 27 was the highest since February 2006 and the second highest since October 2004. Such high downside volume is indicative of a selling climax. Even so, I do not see the deep intraday low and subsequent recovery normally associated with a selling climax on June 27. However, by taking into account the recovery on June 28, the two-day pattern looks more indicative of a selling climax.

FIGURE 2: MARSH & MCLENNAN, DAILY. The two-month trend is down, and some sort of follow-through should be on its way.
Graphic provided by: MetaStock.
 
So what now? The two-month trend is clearly down and I would look for some sort of follow-through. There is a nice trendline extending down from the early May high and this sets the bearish tone for the trend. Follow-through above this trendline (say 27.5) would be quite positive. Should this occur on good volume, I would then look for another move to resistance around 33–35.



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: 06/29/06Rank: 4Comment: 
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