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BREAKOUTS


Kmart Breaking the Trend

02/05/01 03:04:27 PM
by Sean Moore

With a breakout above its long-term downtrend in early January, Kmart has been on the rise, with its stock price gaining nearly 65%.

Security:   KM
Position:   Buy

Few stocks performed as well as that of the Kmart Corporation [KM] during January 2001. The stock rose nearly 65%, making a significant upswing from a long, steady downtrend. Kmart has broken into territory that it hasn't seen in quite some time, a welcome sign after nearly two years of decline.

After spending two months moving sideways around the $6 level, Kmart's stock slipped to below $5 during December 2000. With woeful holiday sales, it seemed the retail sector could be in for another tough year. During the last few trading days in 2000 Kmart regained a little ground, bouncing up to $5.30 with relatively high volume. This was a positive sign, especially after three months of fairly flat volume.


On January 4, 2001, Kmart's stock rose approximately 15%, with a significant breakout above it's long-term downward trend (see Figure 1). This provided an excellent buying opportunity, especially considering the high volume. The stock has been in a rapid upswing ever since, breaking through several levels of resistance along the way.

Figure 1: Kmart made a significant move above its long-term downtrend in early January 2001
Graphic provided by: MetaStock.
 
This is an excellent example of a strong breakout above an established long-term trend. The stock maintained its upward movement throughout January and has been able to establish a new upward trend. The breakout is significant given the length the downtrend. The downtrend started in 1999, when Kmart was trading at $18.

Identifying these long trends, whether they're increasing or decreasing, and looking for significant breakouts above or below the trends can provide some excellent opportunities for profit!




Sean Moore

Traders.com Staff Writer.

Title: Project Engineer
Company: Technical Analysis, Inc.
Address: 4757 California Ave. SW
Seattle, WA 98116
Phone # for sales: 206 938 0570
Fax: 206 938 1307
Website: Traders.com
E-mail address: smoore@traders.com

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