A Big Outside Reversal For Southern

03/18/08 10:12:48 AM

by Arthur Hill

Southern Co. forged a huge outside reversal with big volume. This solidifies support and opens the door to further gains.

Security: SO
Position: Accumulate

Figure 1 shows weekly prices with a big support zone around 32–34. The stock declined to this support zone in the summer of 2007 (green rectangle). There was a monster move in August 2007 with a long white candlestick and a surge above 36. This candlestick also formed a big outside reversal that kick-started an advance that lasted the rest of the year.

FIGURE 1: SO, WEEKLY. The stock declined to a support zone around 32–34 in the summer of 2007.

Graphic provided by: TeleChart2007.

The bottom indicator shows SO relative to the Standard & Poor's 500 exchange traded fund (ETF) (SPY). This price relative bottomed in the summer of 2007 and moved higher the last nine months. The rising price relative shows that SO is outperforming SPY, which represents the broader market.

The daily chart highlights the most recent outside reversal with big volume (Figure 2). After declining to the support zone in early March, SO formed a long white candlestick that completely covered the last 11 candlesticks. Also notice that the stock opened weak and closed strong. The ability to recovery after a weak open shows strength. The ability to close at an 11-day high on good volume shows strong buying pressure. This long white candlestick solidifies support and the trendline break calls for further gains in the coming weeks.

FIGURE 2: SO, DAILY. Here's the most recent outside reversal with big volume.

Graphic provided by: TeleChart2007.

The bottom indicator shows SO relative to SPY over the last few months. This indicator bottomed in late February 2008 and turned up in early March. This upturn showed relative strength in SO and the price relative surged on March 17. Relative strength further validates this outside reversal.

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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A Big Outside Reversal For Southern

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