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TECHNICAL ANALYSIS


AKS At A High

03/20/08 11:20:14 AM
by Chaitali Mohile

AKS moved marginally above its previous high. Check out the stability and certainty in the rally.

Security:   AKS
Position:   N/A

AKSteel Holding Corp. (AKS), after undergoing a deep correction of approximately 20 points, reached its all-time high. By the time the security established support during the correction, the stochastic (14,3,3) was oversold and a great buying opportunity was created. The rally, while traveling toward the 56 level formed an advance block, indicating weakness. The last three candles marked show the advance block pattern, a bearish reversal pattern. The pattern indicates that bulls are losing their hold on the rally. So the first indication points toward profit-booking.

FIGURE 1: AKS, WEEKLY. The double-top formation and advance block shows the possibility of an upcoming bearish rally.
Graphic provided by: StockCharts.com.
 
Second, a double top is formed at the higher levels with the stochastic at a highly overbought area and unable to sustain there. The average directional movement index (ADX) (14) shows a developing uptrend, but the buying pressure cannot carry on the bullish action satisfactorily. And again, the financial markets are globally testing their lows so it's always wise to take the profits off the table and look for the next opportunity.

FIGURE 2: AKS, DAILY. The stock may retrace to the support-resistance line.
Graphic provided by: StockCharts.com.
 
The daily chart seen in Figure 2 also figures the slowdown in the bullish run. The stochastic (14,3,3) is overbought for a much longer period, so it may lose its place any time. This can bring down the price to its previous support zone. The horizontal line drawn on the price chart is the support-resistance line for the entire period; 48 was the resistance level that dragged down the stock twice to lows. A red line appears, indicating the resistance; on the contrary, when the level was crossed over, the red line turned green, indicating a newly formed support. So if the stochastic shows its effect and price tumbles down, then the green line would stand as the support level. On violating the support-resistance line, more of a downfall is possible.

The ADX (14) is currently developing an uptrend, so establishing support at the 48 level is essential for the stock to have developed an uptrend. The gap between the trigger line and the MACD has gradually reduced, and the weakness would pour in with the bearish crossover. Therefore, both the indicators are not purely bullish even as AKS is at its higher level. I would suggest profit-taking at the current levels and wait for the next opportunity. The stock is not performing at its best; hence, the rally may get stale very soon.



Chaitali Mohile

Active trader in the Indian stock markets since 2003 and a full-time writer. Trading is largely based upon technical analysis.

Company: Independent
Address: C1/3 Parth Indraprasth Towers. Vastrapur
Ahmedabad, Guj 380015
E-mail address: chaitalimohile@yahoo.co.in

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