Breakout For Bristol-Myers

12/05/08 08:38:24 AM

by Arthur Hill

A high-volume resistance break and relative strength point to further upside for Bristol-Myers Squibb.

Security: BMY
Position: Buy

Figure 1 shows Bristol-Myers Squibb (BMY) with daily bars over the last seven months. The stock surged in October, formed a falling flag in November, and surged again in early December. This second surge triggered a flag breakout that signals a continuation of the October surge.

FIGURE 1: BMY, DAILY. The stock surged in October, formed a falling flag in November, and surged again in early December.

Graphic provided by: TeleChart2007.

Relative strength and volume confirm the breakout. The magenta line shows the relative strength comparative, which compares the performance of BMY to the Standard & Poor's 500 exchange traded fund (ETF) (SPY). BMY started outperforming in mid-September as the relative strength comparative moved sharply higher. The bottom indicator window shows on-balance volume (OBV) breaking above its May trendline over the last few days. Upside volume is outpacing downside volume, and this validates the breakout.

FIGURE 2: BMY, WEEKLY. Here, BMY is trading near its 40-week moving average (200-day) and the trendline is extending down from November 2007.

Graphic provided by: TeleChart2007.

Figure 2 shows weekly candlesticks over the last two years. BMY is trading near its 40-week moving average (200-day) and the trendline extending down from November 2007. The long-term downtrend is at its moment of truth. Based on the flag breakout above, I would expect a breakout on the weekly chart as well. A move above the trendline and 40-week moving average would show the most strength in over a year and reverse the long-term downtrend.

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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