BNI Traces Out An ABC Pattern

09/04/08 11:44:56 AM

by Arthur Hill

Burlington Northern Santa Fe formed an ABC pattern over the last two months, and a big bearish engulfing pattern signals the end of wave C.

Security: BNI
Position: Sell

Figure 1 shows daily candlesticks for Burlington Northern Santa Fe (BNI). The stock declined sharply in June and then recovered a good portion of that decline with an advance over the last two months. Despite an impressive retracement, the advance traced out an ABC pattern that is typical for corrective rallies. Wave A formed with the July advance, wave B formed with the early August dip, and wave C formed with the late August advance.

FIGURE 1: BNI, DAILY. This stock declined sharply in June and then recovered to some degree with an advance over the last two months.

Graphic provided by: TeleChart2007.

A big bearish engulfing on Tuesday signals the end of wave C. The stock opened strong and closed weak on Tuesday to form a long black candlestick. This candlestick completely engulfed the prior white candlestick to forge a bearish candlestick reversal pattern. With further weakness the next day, the bearish engulfing has been confirmed and BNI is putting in a peak. There is also an argument for resistance around 110 from broken support and the early June gap.

FIGURE 2: BNI, WEEKLY. Here's a long-term perspective and downside target.

Graphic provided by: TeleChart2007.

Figure 2 shows weekly candlesticks to provide a long-term perspective and downside target. First, the sharp decline (red arrow) and countertrend advance (blue trendlines) are clear. This countertrend advance looks like a big flag, and a support break would target further weakness toward the next support levels. Broken resistance from the 2007 highs marks the first support zone around 86–88. The 2007 lows mark the next support zone around 74–76. With BNI currently trading around 104, there appears to be more downside risk than upside potential.

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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BNI Traces Out An ABC Pattern

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