An Island Reversal For Amgen

01/30/08 03:51:40 PM

by Arthur Hill

After forming an island reversal on high volume, Amgen looks poised to break resistance and head higher.

Security: AMGN
Position: Accumulate

Figure 1 shows Amgen (AMGN) over the last five months, and it is not a pretty sight. The stock declined sharply in November–December and then gapped down in January. AMGN actually forged a new low in mid-January but bounced back with a long white candlestick and gap. This up gap produced an island reversal and the stock then consolidated at resistance from the January highs.

FIGURE 1: AMGN, DAILY. Here's Amgen over the last five months.

Graphic provided by: TeleChart2007.

A bullish island reversal forms with a gap down, short consolidation, and a gap up. The two gaps create an island of prices (the consolidation) that strand short positions with losses. The high-volume gap further validates the reversal and a break above resistance at 49 would open the door to higher prices.

Figure 2, the weekly chart, confirms resistance at 49 and also shows the potential for a weekly outside reversal. AMGN broke support at 49 in December and broken support turns into resistance. The stock has been below this resistance break most of the last five weeks.

FIGURE 2: AMGN, WEEKLY. Resistance is confirmed at 49 and also shows the potential for a weekly outside reversal.

Graphic provided by: TeleChart2007.

A long white candlestick is taking shape this week, and a close above 49 would forge a weekly outside reversal. This would also recoup the support break from late December. A breakout at 49 would target a move to the next resistance level around 58–59. This resistance area stems from the June and October highs.

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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