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BOLLINGER BANDS


CheckPoint Makes A Big Breakout

11/01/06 08:29:55 AM
by Arthur Hill

After turning rather boring in September and most of October, Checkpoint Systems came back to life with a resistance breakout on big volume.

Security:   CKP
Position:   Accumulate

Checkpoint Systems (CKP) rallied with the NASDAQ in August, but failed to keep up in September and most of October. The NASDAQ advanced sharply in both months, but CKP remains below its August high and showed relative strength. This bout of relative weakness is not encouraging. However, the recent surge and breakout signal a change of heart, and CKP looks poised to outperform in the coming weeks (Figure 1).

FIGURE 1: CHECKPOINT SYSTEMS. CKP looks poised to outperform in the coming weeks.
Graphic provided by: MetaStock.
 
The stock surged in August and then corrected in September. The decline looked like a classic falling flag, and the mid-October breakout looked pretty bullish. However, the stock went back into a trading range and established resistance at 17.5. The range was quite narrow for three weeks and the Bollinger Bands narrowed significantly (Figure 2). The narrowing of these bands shows a volatility contraction and this often leads to a volatility expansion, but Bollinger Bands do not provide a directional clue.

FIGURE 2: CHECKPOINT SYSTEMS. As a continuation of the August advance, a move into the low 20s may be likely.
Graphic provided by: MetaStock.
 
CKP provided the directional clue with a long white candlestick on high volume. The move broke above resistance at 17.5 and exceeded the upper Bollinger Band. In addition, volume surged to its highest level since late August, further reinforcing the breakout. The move also reinforced support around 17, and a break below 16.8 would negate this bullish signal. As a continuation of the August advance, I would expect a move into the low 20s. The stock consolidated around 20-22 in June-July, and this area now acts as a resistance zone.



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
Company: TDTrader.com
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Website: www.tdtrader.com
E-mail address: arthurh@tdtrader.com

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