A Pitchfork Breakout For Best Buy

09/13/06 07:53:08 AM

by Arthur Hill

Best Buy looks like a good buy after a break above the upper trendline of a falling pitchfork.

Security: BBY
Position: Accumulate

Figure 1 shows a rising Andrews pitchfork from August 2004 to July 2006 and a falling pitchfork from April 2006 to the present. The middle line of the pitchfork is a pseudo-linear regression line that runs through the price action. The upper and lower trendlines are parallel, and these often mark resistance and support.

FIGURE 1: BEST BUY. This chart shows a rising Andrews pitchfork from August 2004 to July 2006 and a falling one from April 2006 to now.

Graphic provided by: MetaStock.

The green pitchfork defined the long-term uptrend and Best Buy (BBY) broke support from the lower line with a sharp decline in July. A downtrend started at this point, and the red pitchfork was added to define this downtrend. Relative to the prior uptrend, this decline is smaller and could be just a correction of the prior advance (41 to 60). This idea gained credence with a break above the upper pitchfork trendline and an August high at 50. Even though the week is only two days old, this breakout is occurring on above-average volume, and this validates the move. The initial upside target would be the spring highs around 60.

I am also seeing bullish confirmation from the relative strength index (RSI), which measures momentum. The RSI moved above 50 in May 2005, and this started an advance that lasted until the summer of 2006 (green circle); 50 acted as support during this advance and RSI managed to bounce off this level three times (green carets). The third bounce did not last too long, however, and the RSI moved below 40 in July. Now that the RSI broke below 50, this level turns into resistance and the break back above 50 is bullish for momentum again.

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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ANDREWS PITCH-FORK

A Pitchfork Breakout For Best Buy

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