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FLAGS AND PENNANTS


Euro Index Surged Higher

03/27/08 11:39:11 AM
by Chaitali Mohile

$XEU broke out of a flag & pennant pattern and pushed the rally to new highs.

Security:   $XEU
Position:   N/A

The Euro Index has enjoyed a robust rally since late 2006, as you can see from the chart in Figure 1. The index surged, followed by a consolidation wherever necessary, and correcting a bit, establishing healthy support. The index therefore accumulated strength before hitting new levels. Since September 2007, the strong euro had an upward rally without turning back consecutively for four months. Usually, such steep movements are very risky, as they might give rise to turmoil anytime on maturation. But the index consolidated between 142.50 and 147.50, forming a flag & pennant pattern, adding to the bullish strength.

FIGURE 1: EURO INDEX, WEEKLY. The index has had a robust rally since late 2006.
Graphic provided by: StockCharts.com.
 
The relative strength index (RSI) (14) also turned range-bound after declining from the marginal overbought area. And the moving average convergence/divergence (MACD) (12,26,9) had a periodic bullish/bearish crossover in positive territory. The upward breakout soon occurred on the back of these bullish indicators. The length of the flagpole is 10 (147.5-137.5), so adding the breakout level to the length of the pole is the minimum estimated level. The index has almost achieved its target of 147.50 + 10= 157.50. Traders can look to taking their profits off the table for the achieved target and the RSI (14) turning marginally overbought. Though an overbought RSI does not reflect any storms, taking your profits may be advisable.



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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