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ON BALANCE VOLUME


Alaska Air Making Bid To Break Out

09/27/06 08:10:11 AM
by Arthur Hill

Alaska Air likes the sound of falling oil prices as the stock moves to channel resistance and readies for a breakout.

Security:   ALK
Position:   Accumulate

Alaska Air (ALK) surged above 39 in the spring and then corrected to around 34 over the summer. The correction formed a long falling price channel and the stock found support around 34 in June, July, and August. This area was the scene of a consolidation in April (Figure 1) and this trading range acted as support months later. In addition, the decline to 34 marked a 62% retracement of the March-May advance (30 to 39). A break above the July high (40.20) would signal a continuation of the prior advance and target further strength into the mid-40s.

FIGURE 1: ALASKA AIR. ALK surged in the spring and then corrected over the summer.
Graphic provided by: TC2000.com.
Graphic provided by: TeleChart 2007.
 
On-balance volume (OBV) shows sustained buying pressure, and this increases the chances of a breakout. Even during the summer correction, OBV continued its advance and moved to new highs (magenta line). There were dips along the way, but the overall trend in OBV is clearly up. Joe Granville theorized that volume precedes prices, and this volume indicator points to a breakout in ALK.

With the stock trading near 39.5, I find support quite a ways off and would keep an eye on the moving average convergence/divergence (MACD) for signs of trouble (red line). The MACD broke into positive territory in late August and has been trending higher the last few weeks. Momentum should remain strong for a truly strong stock, and a move back into negative territory for MACD would be a warning sign.



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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Date: 09/27/06Rank: 4Comment: 
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