Dupont Shows Relative Strength

02/14/08 04:13:59 PM

by Arthur Hill

After a big reversal in January, Dupont consolidated near resistance and continued relative strength points to a breakout.

Security: DD
Position: Accumulate

Figure 1 shows weekly prices for some perspective. Dupont (DD) gapped down in July and declined the last six months. The stock hit a new low in January, but immediately reversed to form a long white candlestick on good volume. Despite this high-volume reversal, the stock stalled below resistance, and some follow-through is needed to fully reverse the downtrend. DD remains below the July trendline and below resistance from broken support.

FIGURE 1: DUPONT, WEEKLY. DD gapped down in July and declined the last six months.

Graphic provided by: TeleChart2007.

Figure 2 show daily prices and focuses on the consolidation that formed over the last few weeks. DD surged to resistance and then stalled. The consolidation represents a rest after the surge. In addition, this consolidation reinforces resistance around 46.5 and a breakout is needed to signal a continuation higher. A break above the February high would be bullish and target further strength toward the next resistance zone (49–50).

FIGURE 2: DUPONT, DAILY. DD surged to resistance and then stalled.

Graphic provided by: TeleChart2007.

The bottom indicator window shows Dupont relative to the S&P 500 ETF (SPY). The price relative rises as DD outperforms the market and falls as DD underperforms. The price relative bottomed in mid-December and moved sharply higher the last two months. Note that the indicator did not even weaken when DD declined in mid-January. The price relative went on to break above its November high. This shows relative strength and bodes well for a breakout.

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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