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US Paper Index Beats Rock And Scissors

05/31/07 08:50:11 AM
by Gary Grosschadl

This Dow Jones index is in a breakout pattern. So what is the upside target?

Security:   $DJUSPP
Position:   Buy

Figure 1, this weekly chart, shows the Dow Jones US Paper Index in a breakout formation via an ascending triangle breakout. The ascending triangle is a bullish formation that usually forms during an uptrend as a continuation pattern and suggests accumulation.

Several technical indicators are worthy of comment. At the top of the chart, the three components of the directional movment indicator show a bullish setup. A rising average directional movement index (ADX) line above 20, in between bullishly poised DI lines (positive and negative directional indexes), shows a strong and rising trend.

Below the chart, the moving average convergence/divergence (MACD) and the relative strength index (RSI) show bullish rising trends. Meanwhile, the stochastic oscillator is in overbought territory, which is a cautionary note. However, when a strong trend is in place, this indicator can "stick high" for a period of time.

FIGURE 1: DOW JONES US PAPER INDEX, WEEKLY. A breakout is showing in this index.
Graphic provided by:
The upside target for this triangle break is 202, which is the measurement of the widest part of the triangle, applied to the move above the upper trendline (breakout point). This is a guideline only as the move can fall short or be exceeded, depending on emotional drivers behind market perceptions.

With this index showing a bullish development, traders may want to target bullish-looking stock plays in this sector.

Gary Grosschadl

Independent Canadian equities trader and technical analyst based in Peterborough
Ontario, Canada.

E-mail address:

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