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BREAKOUTS


Schwab Holds The Breakout

06/10/08 01:31:36 PM
by Arthur Hill

Charles Schwab Corp. is holding its resistance breakout with a consolidation, and traders should watch the consolidation highs for a bullish continuation signal.

Security:   SCHW
Position:   Hold

Figure 1 shows daily prices with a high-volume breakout in April. This move carried Schwab above two key moving averages (50-day and 200-day). Volume expanded during the four-day surge to show strong buying pressure. Broken resistance around 20.5 turned into support, and this area held into early June. Note that the two moving averages also turned into support. The breakout was strong and it is holding. This shows strength.

FIGURE 1: SCHW, DAILY. Here are daily prices with a high-volume breakout in April.
Graphic provided by: TeleChart2007.
 
The pattern at work looks like a big advance and falling flag. This is a bullish setup and a break above flag resistance would signal a continuation of the April surge. Failure to continue higher and a break below support at 21 would negate this setup. The bottom indicator window shows the price relative, which compares the performance of SCHW to the Standard & Poor's 500. Schwab is holding up quite well in recent weeks and a price relative breakout would increase the chances of a price breakout.

I am turning to the weekly chart for an upside target and long-term perspective (Figure 2). Based on traditional technical analysis measurements, a flag breakout would project a move to around 26. The length of the first move (23 - 18 = 5) is added to flag support (21 + 5 = 26). This target is confirmed by resistance from the October high.

FIGURE 2: SCHW, WEEKLY. See the upside target and long-term perspective.
Graphic provided by: TeleChart2007.
 
This weekly chart also shows the power behind the April breakout. SCHW found support around 17.3–18 in March and then surged above resistance with a long white candlestick in April. These April gains held over the last five to six weeks, and traders should be on guard for a continuation breakout.



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.

Title: Editor
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E-mail address: arthurh@tdtrader.com

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