A Potential Double Bottom In Bananas

11/14/06 08:55:39 AM

by Arthur Hill

Chiquita Brands surged off support over the last few weeks, and a double bottom could be taking shape.

Security: CQB
Position: Accumulate

Chiquita Brands (CQB) declined sharply from July 2005 to July 2006. During this descent, the stock lost more than 50% of its value and declined below 13. CQB bottomed in July and surged back above 15 in early August. There was a second support test in October, and a reaction low here would form the second low in what could become a double bottom.

The double bottom is a bullish reversal pattern that requires confirmation with a break above the intermittent higher. In this case, CQB would have to break above the September high (17.5) to confirm the pattern and target further strength toward 22-23. The upside target is found by adding the length of the pattern to the breakout point (17.5 - 13 = 4.5; 17.5 + 4.5 = 22.5).

FIGURE 1: CHIQUITA BRANDS, WEEKLY. CQB bottomed in July and surged back above 15 in early August.

Graphic provided by: TC2000.com.

Graphic provided by: Telechart 2007.

In addition to the double bottom, the moving average convergence/divergence (MACD) formed a positive divergence on the weekly chart (Figure 1) and moved above its signal line. The MACD remains in negative territory overall, but the higher low shows less downside momentum and the move above the signal line shows that the MACD is improving.

FIGURE 2: CHIQUITA BRANDS, DAILY. CQB gapped up in August on good volume. After a pullback in September, the stock firmed in October and moved higher in November.

Graphic provided by: TC2000.com.

Graphic provided by: Telechart 2007.

Turning to the daily chart (Figure 2), we can analyze the strength, or lack thereof, behind the October–November advance. First, I would like to point out that CQB gapped up in August on good volume. After a pullback in September, the stock firmed in October and moved higher in November on good volume. This makes moves off support with good volume. Expanding upside volume validates bounce off support and the first target is double top resistance around 17.5.

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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A Potential Double Bottom In Bananas

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