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REL. STR COMPARATIVE


Oracle Outperforms

07/24/06 08:18:00 AM
by Arthur Hill

While the NASDAQ recently broke to a new 52-week low, Oracle reached a 52-week high and shows excellent relative strength.

Security:   ORCL
Position:   Buy

On the price chart (Figure 1), Oracle (ORCL) formed a large triangle over the last 18 months and broke resistance this summer. There was a triangle breakout in the spring, but ORCL fell back into the triangle and established support at 13. The lower triangle trendline held without a challenge and the stock broke back above the upper triangle trendline with a surge in June. The current breakout is holding, calling for further strength above 17. The width of the pattern is added to the breakout for an upside projection.

Strong upside volume reinforces the breakout. Upside volume has been outpacing downside volume since December 2005. Despite some high-volume down days in December and January 2006, Oracle has always rebounded with even more volume. This trend continued until 2006, as the only weeks with above average volume occurred when the stock advanced. This shows strong buying pressure and validates the breakout.

FIGURE 1: ORACLE. ORCL formed a large triangle over the last 18 months and broke resistance this summer.
Graphic provided by: MetaStock.
 
Relative strength also reinforces the breakout. If the NASDAQ were recording new 52-week highs as well, the breakout and 52-week high in ORCL would not be special. However, the NASDAQ is not making 52-week highs and Oracle is clearly bucking the NASDAQ. This is what relative strength is all about, and you can see that price relative broke to a new high in June (green oval).

A breakout on the price chart, a breakout in the price relative, and strong volume make a powerful combination, and I expect Oracle to continue higher. Watch key support at 13 for signs of trouble that would negate this bullish prognosis.



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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Address: Willem Geetsstraat 17
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E-mail address: arthurh@tdtrader.com

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