A Big Breakout For Labranche

05/02/08 01:12:34 PM

by Arthur Hill

After basing for eight months, Labranche & Co. broke through resistance on big volume to signal the start of a big uptrend.

Security: LAB
Position: Accumulate

In Figure 1, Labranche (LAB) declined below five in September 2007 and then traded flat until April 2008. The stock traded between 4 and 6.3 over this eight-month period and formed a big base. There were a few attempts to break below 4, but the stock recovered each time and held support. With a big surge over the last two weeks, the stock broke the trendline extending down from November 2006 and broke to an eight-month high.

FIGURE 1: LABRANCHE, WEEKLY. LAB declined before five in September 2007 and then traded flat until April 2008.

Graphic provided by: TeleChart2007.

The eight-month consolidation could be considered a rectangle, and high volume validates the breakout. There was a high-volume advance five weeks ago and then a surge on high volume the last two weeks (green arrows). Volume is fuel and this breakout clearly has plenty of fuel. The upside target zone is around 9-10. This stems from the 200-week moving average and the 2006 consolidation (gray line).

FIGURE 2: LABRANCHE, DAILY. With a big move over the last two weeks, the stock has become a bit overbought.

Graphic provided by: TeleChart2007.

With a big move over the last two weeks, the stock has become a bit overbought and ripe for a pullback. Broken resistance at 5.30 and the 200-day moving average (~5.6) now become support. These make for a support zone around 5.3–5.6. A pullback into this zone could offer a second chance to partake in the new uptrend. RSI recently moved to 70 and became overbought. 50 acts a support in an uptrend and a pullback to this area could also offer a second chance to partake in the uptrend.

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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