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ACCUM./DIST. CHAIKIN


Signs Of Accumulation In WMI

07/27/06 08:38:09 AM
by Arthur Hill

Despite a decline over the last three months, key volume indicators have remained strong for Waste Management (WMI) and the correction may be nearing its end.

Security:   WMI
Position:   Accumulate

I am using two volume-based indicators to measure buying and selling pressure. On-balance volume adds volume on up days and subtracts it on down days (closing basis). The accumulation/distribution line adds volume when the close is above the mid-point of the high-low range and subtracts volume when the close is below the mid-point. On-balance volume works from one close to the next and the accumulation/distribution line works with a single day's price action. This makes them complimentary and valuable when used together.

Graphic provided by: MetaStock.
 
While the stock declined from May to July, the accumulation/distribution line and on-balance volume continued higher. This may seem strange, but it shows that upside volume has been stronger than downside volume from close-to-close AND intraday. Taken together, these indicators show accumulation on the way down and this is quite positive.

While these volume indicators shows signs of accumulation, the price chart shows a clear downtrend. The stock formed lower lows and lower highs the last two months. There was a big surge on Tuesday and this broke the upper trendline. Volume was above average and this is the start of a trend reversal.

In addition to Tuesday's surge, MACD has a positive divergence working and moved above its signal line. Momentum is turning up again and this stock appears to be putting in a bottom. Tuesday's surge in just one day and a little follow through would be nice for confirmation. Failure to hold the trendline break and a move below 33 would negate these early signs of strength.



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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