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CONSOLID FORMATION


Bob Evans Resumes The Moves

02/27/07 09:55:01 AM
by Chaitali Mohile

Restarting the previous rally after a range-bound move during consolidation is essential for an existing trend. BOBE has moved out of a long consolidation period and now is headed to new target of $42.

Security:   BOBE
Position:   Buy

Figure 1 shows Bob Evans Farms, Inc. (BOBE) is in a strong uptrend. Before consolidation the stock had a good run of 8 points, and its consolidation range is $32-$35. Figure 1 shows the relative strength index (RSI)(14) moved close to the 50 level while the price was ranging. The indicator was stable during near its crucial levels, indicating the strength in rally and shows the possibility of a further up move. Now as the price moves out of its long consolidation period at $35, the RSI is also seen moving upward. It moved vertically from the 50 level, giving fresh buying opportunity. The breakout has attracted more buyers, thus increasing the volume. The average directional movement index (ADX)(14) at 19 indicates a developing trend tailwind, with increasing buying pressure. Thus, I would suggest that traders and investors may want to go long with a target of $42.

FIGURE 1: BOB EVANS FARMS, DAILY. BOBE moved out of a four-month consolidation period.
Graphic provided by: StockCharts.com.
 
In Figure 2, BOBE can be seen with breakouts of flag and pennant formation at $35. This formation is a continuation pattern of a previous rally. The flagpole indicates the advance rally and the flag (two horizontal lines) indicates the consolidation. The breakout of this formation restarts the previous rally. The target on flag & pennant is calculated by adding the length of the flagpole to the breakout level.

FIGURE 2: BOB EVANS FARMS, WEEKLY. A new target of $42 is possible on this flag & pennant breakout.
Graphic provided by: StockCharts.com.
 
The RSI (14) has marginally turned overbought at the 69 level, indicating bullish strength in the rally. The RSI can move to a highly overbought level and will lead to upward move in price as well.

The ADX(14) is 24 and indicates a strong bull trend. These indicators shows a bullish trend and strength in the breakout, so traders can buy BOBE. The target is calculated by adding $7 ($28-$35) to the length of the flagpole to $35 -- the breakout level. Traders can see the target of $42 on this breakout.


The stock can be bought as the consolidation range is taken off in upward direction, providing it is in an uptrend. This breakout gives fresh strength to the rally.



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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Date: 02/27/07Rank: 4Comment: 
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