A Double Bottom For LUV

04/11/08 09:51:25 AM

by Arthur Hill

Southwest Airlines formed a double bottom over the last few months, and further strength could forge the breakout needed to confirm this pattern.

Security: LUV
Position: Hold

Figure 1 shows Southwest Airlines (LUV) with a double bottom that extends from January to March. The stock bounced off support around 11 twice and formed an intermittent high just above 13. Overall, the trend remains down because the double bottom has yet to be confirmed with a breakout. A trend is in place until proven otherwise. A break above the February high would confirm this pattern and reverse the current downtrend. The upside target would be to around 15. The length of the pattern is added to the breakout for an upside target. In addition, there is resistance around 15 from the November high and resistance around 14.5 from the December high.

FIGURE 1: SOUTHWEST AIRLINES. LUV has a double bottom that extends from January to March.

Graphic provided by: MetaStock.

The black indicator shows the accumulation/ distribution line, which was developed by analyst Marc Chaikin. As its name implies, the indicator uses volume and price action to measure accumulation versus distribution. Accumulation occurs when the close is above the midpoint of the high-low range and distribution occurs when the midpoint is below. The indicator formed a positive divergence in 2008 and broke resistance in April. This shows signs of accumulation and increases the chances of a breakout in the stock.

FIGURE 2: SOUTHWEST AIRLINES. Here, LUV focuses on the last few weeks of price action.

Graphic provided by: MetaStock.

Figure 2 focuses on the last few weeks of price action. LUV surged off support in March and then consolidated with a flat flag in April. This looks like a bullish consolidation, and a break above flag resistance would signal a continuation higher. This would also confirm the double bottom. A failure to break out and a move below flag support would put the double bottom on hold.

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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DOUBLE BOTTOMS

A Double Bottom For LUV

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