A Momentum Upturn For Arthrocare

09/18/08 08:46:37 AM

by Arthur Hill

Arthrocare shows signs of strength with improving momentum and good upside volume on its recent breakout.

Security: ARTC
Position: Accumulate

Figure 1 shows 60-minute bars to illustrate the recent head & shoulders breakout in Arthrocare (ARTC). The left shoulder formed in late August 2008, the head in early September, and the right shoulder in mid-September. As this consolidation formed, the stock established resistance around 27.5 with at least four reaction highs. Wednesday's surge broke neckline resistance and turned the short-term trend up.

FIGURE 1: ARTC, HOURLY. The left shoulder formed in late August, the head in early September, and the right shoulder in mid-September.

Graphic provided by: TeleChart2007.

Figure 2 shows ARTC with daily candlesticks and a different pattern. After surging in mid-August, the stock pulled back with a falling wedge. ARTC broke wedge resistance with good volume in early September and this reversed the three-week slide. Both breakouts are bullish and the next resistance (target) zone is around 36–40. This zone stems from broken support, the July consolidation, and the 200-day moving average.

Volume and momentum confirm the recent breakout. There have been four big volume surges in the last two months. More important, these surges occurred with advances in the stock. Buying pressure increases when the stock goes up, and this shows buyer confidence.

FIGURE 2: ARTC, DAILY. After surging in mid-August, the stock pulled back with a falling wedge.

Graphic provided by: TeleChart2007.

The bottom indicator shows the moving average convergence/divergence (MACD) bouncing off the zero line. This momentum oscillator retreated to the zero line during the falling wedge correction and turned up with the breakout. The MACD moved above its signal line, and momentum favors the bulls as long as the MACD rises. Look for a move back into negative territory to negate the recent breakout in ARTC.

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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A Momentum Upturn For Arthrocare

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