Chevron Gaps Off Support

09/06/06 07:46:20 AM

by Arthur Hill

A gap off support and an advance on high volume increase the odds of a flag breakout for Chevron.

Security: CVX
Position: Accumulate

On the price chart, Chevron (CVX) broke through a resistance zone with a surge in June and July (Figure 1). The breakout forged a 52-week high, and this energy player was leading the overall market. The stock consolidated after the resistance breakout and a falling flag formed in August (blue trendlines). After a sharp advance, the falling flag represents a slight correction or consolidation. It is a chance to digest gains and prepare for a continuation higher.

FIGURE 1: CHEVRON. CVX broke through resistance with a surge in June and July.

Graphic provided by: MetaStock.

The falling flag found support around 64, and this stems from the top of the prior resistance zone. The forces of supply were lined up around 63—64 in January and May. Once conquered, these forces switch sides and join the buyers to create a demand field (support zone). Tuesday's gap and high-volume surge reinforce support at 64, and this is the level to watch for a failure. To confirm the flag, the stock needs to follow through on the gap and break above 68.

Upside volume has been leading downside volume, and this shows accumulation. The stock peaked in late July and declined throughout August. However, downside volume was average or below during this decline. There were three volume spikes in the last four weeks, and all three occurred on up days. More money is moving into the stock on up days than moving out on down days.

I am also looking at the Aroon oscillators for confirmation of a breakout. Aroon up is green and Aroon down is red. A bull signal occurs when Aroon up crosses above Aroon down. It is a pretty clear-cut signal that worked well in March and June (blue lines). A move above 68 in the stock and bullish Aroon cross would trigger a bull signal.

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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Chevron Gaps Off Support

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