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DOUBLE BOTTOMS


A Double Bottom For Unisys

09/19/06 08:44:21 AM
by Arthur Hill

Unisys successfully tested support from its October 2005 low, and a large double bottom is taking shape.

Security:   UIS
Position:   Accumulate

On the price chart (Figure 1), Unisys (UIS) formed two lows just below 5 in October 2005 and August 2006. The first low formed with a gap down and hammer. The second low formed with a bullish engulfing (green ovals). The gap down and hammer signaled a selling climax and the bullish engulfing is a candlestick reversal pattern. In addition, note that the bullish engulfing formed a few weeks after a long black candlestick. Even after a gap and sharp decline, buyers were stepping in and the stock did not stay below 5 for long.

Even though there is solid support just below 5, the stock remains below the trendline extending down from April 2004 and the March 2006 high. The April 2004 trendline sets the tone of the current decline, and a break above this level is required to break the decline. It would take a move above the March high to confirm the double top and the upside target would be around 10. The length of the pattern is added to the breakout for an upside projection. In addition, there is a resistance zone around 10 from a prior consolidation (July–November 2004).

FIGURE 1: UNISYS. UIS formed two lows just below 5 in October 2005 and August 2006.
Graphic provided by: MetaStock.
 
The moving average convergence/divergence (MACD) shows improving momentum and this favors further strength, which in turns favors a trendline breakout and double-bottom breakout. While the stock moved to new (closing) lows in October 2005 and August 2006, the MACD formed higher lows and this creates a positive divergence. In addition, the MACD moved above its signal line over the last few weeks and this shows that the MACD is turning up. The MACD remains in negative territory overall, but this upturn is a start and I give the bulls the edge as long as MACD holds above its signal line (magenta trendline).



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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Date: 09/23/06Rank: 5Comment: 
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