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WEDGE FORMATIONS


Hain Celestial Comes Out Of Falling Wedge, Heads Up?

03/23/07 08:28:45 AM
by Chaitali Mohile

Hain Celestial Group breaks out of a falling wedge formation. Is it heading up?

Security:   HAIN
Position:   Buy

Hain Celestial Group (HAIN), after having seen a falling wedge reversal pattern form, has continued to move up. The upper trendline met with resistance for a breakout. When the resistance was taken out with increased volume, the breakout was confirmed. This newly formed resistance acts as support for the breakout rally. HAIN is trying to break away from this resistance line and volume is also seen as increasing.

FIGURE 1: HAIN, WEEKLY. Hain Celestial tries to break out of a falling wedge.
Graphic provided by: StockCharts.com.
 
In Figure 1, the relative strength index (RSI)(14) dipped from 75 to 50 as a falling wedge was forming. But as price tried to break out, the RSI(14) took support at 50 level and turned up. The RSI(14) at 55 indicates a bullish strength in a breakout rally and allows fresh buying for traders. The average directional movement index (ADX)(14), though declining, has not crossed 20, hence indicating a developing uptrend. In addition, the positive directional index (+DI) and negative directional index (-DI) are moving with equal pace. So the bullish trend tailwind is developing.

Hence, traders may do well to go long with a target of $34. The falling wedge breakout target takes into account the length of the wedge that is $32 to $28. So by adding $4 to $30 of the breakout level, we can see the target of $34. The previous high of $32 can act as resistance as well, but traders can continue holding.

FIGURE 2: HAIN, DAILY. The stock should break through the upper range of consolidation.
Graphic provided by: StockCharts.com.
 
Figure 2 shows a long consolidation range of $30.50–$28.50. The stock is moving in this range for more than two months, and the lower level of the range was tested. The stock at $29.50 is standing on support of 50-day moving average (MA), which adds the strength to the price for moving out of the upper-range resistance. Increase in volume would make the breakout rally stronger. The RSI(14) is at a very important support level for traders to allow fresh buying, but traders should enter the stock only above the $30 level for low risk position. With an increase in buying pressure, the ADX(14) at 18 indicates a developing bullish trend.

Thus, the falling wedge breakout at $30 can be bought with the target of $34. The falling wedge on Figure 1 and a 50-day MA support during consolidation adds credence to the bullish 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: 03/23/07Rank: 4Comment: 
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