A Morphing Pattern For Continental Airlines

04/05/07 08:58:18 AM

by Arthur Hill

Continental Airlines broke head & shoulders support in late February, but the decline is morphing into a falling wedge, and a break back above the neckline would be bullish.

Security: CAL
Position: Hold

New price data is added every trading day, and this means analysis is subject to change based on new information. For Continental Airlines (CAL), a head & shoulders breakdown was dominant in early March 2007 (Figure 1). The stock continued down to its 200-day moving average and bounced sharply over the last two days. Volume was above average, causing me to reassess the head & shoulders breakdown.

FIGURE 1: CONTINENTAL AIRLINES, DAILY. A head & shoulders breakdown was dominant in early March.

Graphic provided by: Telechart 2007.

The head & shoulders formed from November 2006 to February 2007, and the neckline break projected further weakness to around 27. The distance from the neckline to the top of the head is subtracted from the neckline for a downside target (53 - 40 = 13, 40 - 13 = 27). Things were looking bearish until the stock gapped up and bounced off its 200-day moving average with high volume. The neckline break becomes resistance and a move back above this level would call for a complete reassessment.

FIGURE 2: CONTINENTAL AIRLINES, DAILY. The right half of the head & shoulders and decline over the past two and a half months are morphing into a falling wedge.

Graphic provided by: Telechart 2007.

The right half of the head & shoulders and decline over the last two and a half months are morphing into a falling wedge (Figure 2). This pattern is typical for a corrective decline, and the move retraced 50%–62% of the August–January advance. The retracement is also typical for a correction. The high-volume surge above trendline resistance is a start, but a complete trend reversal has yet to occur. CAL needs to follow through with a break above the 50-day and the March high. A move above 41 would negate the head & shoulders and bring the wedge breakout to the forefront.

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 Morphing Pattern For Continental Airlines

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