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CANDLESTICK CHARTING


Oracle Firms Within A Channel

03/07/07 08:41:35 AM
by Arthur Hill

Oracle is showing some relative strength over the last few days, and confirmation of a bullish candlestick reversal pattern would forge a breakout.

Security:   ORCL
Position:   Accumulate

Figure 1 shows Oracle (ORCL) and the price relative (blue line). The price relative is formed by dividing the price of the stock by the price of the index. In this example, I am using the NASDAQ 100. The price relative firmed the last two weeks of February and then turned up at the end of February with a surge over the last five days. Why this surge? Because Oracle held firm over the last five days and the NASDAQ 100 declined sharply. The combination makes the ORCL/NDX ratio rise and shows relative strength from Oracle. Relative strength is often one of the first signs of absolute strength.

FIGURE 1: ORACLE, DAILY. The price relative is formed by dividing the price of the stock by the price of the index.
Graphic provided by: Telechart 2007.
 
Turning to the price chart for Oracle (Figure 2), we can see a well-defined falling price channel over the last two to three months. This channel marks out a clear downtrend since mid-December, and it would take a move above 17.37 to break resistance. Such a move would reverse the downtrend and call for higher prices in the coming weeks and months.

FIGURE 2: ORACLE, DAILY. Here we can see a well-defined falling price channel for the last two to three months.
Graphic provided by: Telechart 2007.
 
There are signs of buying pressure within the channel. I already pointed out relative strength over the last five days, and the stock formed a bullish engulfing on higher volume last week (green box). As its name implies, this is a bullish candlestick reversal pattern that requires confirmation and a move above 17.37 would provide confirmation. Considering recent NASDAQ weakness, I am quite impressed with the high-volume advance four days ago. High volume shows a lot of buying interest and traders should be on guard for a follow-through breakout.



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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