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Coke Topping Out?

09/26/06 09:14:26 AM
by Gary Grosschadl

The Coca-Cola Bottling Co. stock price has been above $60 less than a handful times since 1997.
Recently it spiked that high again, but now that threshold has fizzed. Was this a top?

Security:   COKE
Position:   Sell

Figure 1, a daily chart for COKE, suggests a double top may be in the making. The symmetry looks good for this pattern; note the doji bottom marking the troughline. A few trading days ago, the bullish thrust above $62 was beaten back to close near the low of the day. This weakness, emphasized by the long upper shadow, was confirmed the next day with a gap down and another bearish close.

This action suggests that a troughline test of support is likely. A double top technically is not official until the formation closes below that trendline. This would bring into focus the downside fulfillment target near $49, roughly the upside measure from troughline to top, as applied to the downside break. Another possibility is support from the 200-day exponential moving average (EMA) currently at 51.69.

FIGURE 1: COKE, DAILY. This chart of COKE suggests the fizz may be flattening via a possible double top.
Graphic provided by:
Several indicators are worth commenting on. At the top of the chart a bearish reversal is starting via the positive and negative directional indicators (+DI/-DI). When the red line of -DI rides above +DI, the bears are deemed to have the upper hand.

The most striking indicator is the moving average convergence/divergence (MACD). Note the very large negative divergence to price action. As the second peak was hit, this indicator fell far short of doing the same. This hints at a coming downturn. The relative strength indicator (RSI) shows its own divergence, albeit much smaller. The stochastic oscillator clearly shows a downleg under way.

In summary, there are three downside targets: a troughline test near $55 (support here averts a double top formation), possible support near the 200-day EMA, and the pattern target near $49.

Gary Grosschadl

Independent Canadian equities trader and technical analyst based in Peterborough
Ontario, Canada.

E-mail address:

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