Lilly Winds Up For The Pitch

09/27/07 08:52:35 AM

by Arthur Hill

Eli Lilly has been consolidating since early June and the coil is winding ever tighter ahead of an impending breakout.

Security: LLY
Position: Hold

Figure 1 shows Eli Lilly (LLY) with a diamond formation and the Bollinger Bands. The left half of the diamond shows a broadening formation and the right half shows a symmetrical triangle. The broadening formation was expanding but then started contracting to form the triangle. Taken together, this shows that LLY traded in a tight consolidation, expanded, and then moved back into a tight consolidation. Diamonds are neutral patterns that require a breakout for a directional bias.

FIGURE 1: LLY, DIAMOND AND BOLLINGER BANDS. The left half of the diamond shows a broadening formation and the right half shows a symmetrical triangle.

Graphic provided by: MetaStock.

I have overlaid the Bollinger Bands and these are tightening again. Note that the bands tightened in early July just before volatility expanded (blue line). It looked like an upside breakout was occurring (green arrow), but the stock fell back sharply and then turned wild in the first half of August. Now that things have quieted down again, it is time to start looking for another volatility expansion. Bollinger Bands do not give us directional clues and we must turn to support/resistance for a breakout.

FIGURE 2: LLY, SYMMETRICAL TRIANGLE. A break above resistance would be bullish and project further strength to around 63.

Graphic provided by: MetaStock.

Figure 2 focuses on the symmetrical triangle with support at 55.5 and resistance at 58.2. A break above resistance would be bullish and project further strength to around 63–64. There were two ways to find this target. First, I drew a trendline parallel to the lower triangle trendline and extended it out. This gray trendline targets a move to around 63–64. Second, the length of the pattern (5.5) was added to the breakout. This also targets a move to around 63–64. I am only offering the bullish scenario here, but a break below 55.5 would clearly be bearish. Mirror techniques can be applied to estimate a downside target.

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
Company:	TDTrader.com
Address:	Willem Geetsstraat 17
	Mechelen, B2800
Phone # for sales:	3215345465
Website:	www.tdtrader.com
E-mail address:	arthurh@tdtrader.com
Traders' Resource Links
TDTrader.com has not added any product or service information to TRADERS' RESOURCE.

Click here for more information about our publications!

PRINT THIS ARTICLE

Request Information From Our Sponsors

DEPARTMENTS: Advertising | Editorial | Circulation | Contact Us | BY PHONE: (206) 938-0570

Comments or Questions?	Article Usefulness
	5 (most useful) 4 3 2 1 (least useful)

SYMMETRICAL TRIANGLE

Lilly Winds Up For The Pitch

SUBSCRIBE TO OUR FREE EMAIL NEWSLETTER!

SUBSCRIBE TO OUR FREE
EMAIL NEWSLETTER!