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FLAGS AND PENNANTS


AIV Gives Fresh Breakout Of Flag Formation

01/23/07 03:59:22 PM
by Chaitali Mohile

Apartment Investment and Management Co. shows a strong profit potential.


Security:   AIV
Position:   Buy

In Figure 1, the weekly chart shows that Apartment Investment and Management (AIV) started its vertical move from $42 to $57 with higher volume, an important factor. This vertical move of $19 is the flagpole. With a high at $57 the stock started consolidating, forming a flag. Traders can see the price made a breakout at $57 on increased volume. So should we buy this stock? The answer is yes. But to confirm, we must consider the indicators too.

The relative strength index (RSI) (14) shows a bullish strength in rally. The average directional movement index (ADX)(14) at the 42 level indicates a strong uptrend. As price started consolidating, the overheated ADX at the 50 level just declined to 42. This indicates the strong uptrend still exists. The moving average convergence/divergence (MACD)(12,26,9) is trying to give a bullish crossover. Though the crossover is still not confirmed, we combine the MACD with the RSI and the ADX. As a result, traders and investors can go long with a target of $76.

FIGURE 1: AIV, WEEKLY. AIV has made a flag formation twice, with good volume too.
Graphic provided by: StockCharts.com.
 
While calculating the target on this formation, the size of the flagpole must be considered. The distance between the lower end and the upper end of flagpole is $19 ($42-$57). So by adding $19 to the pullback level ($57), we get the target of $76. Hence, I would recommend that traders and investors buy this breakout of flag and pennants.



Chaitali Mohile

Active trader in the Indian stock markets since 2003 and a full-time writer. Trading is largely based upon technical analysis.

Company: Independent
Address: C1/3 Parth Indraprasth Towers. Vastrapur
Ahmedabad, Guj 380015
E-mail address: chaitalimohile@yahoo.co.in

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