HOT TOPICS LIST
- MACD
- Fibonacci
- RSI
- Gann
- ADXR
- Stochastics
- Volume
- Triangles
- Futures
- Cycles
- Volatility
- ZIGZAG
- MESA
- Retracement
- Aroon
INDICATORS LIST
LIST OF TOPICS
PRINT THIS ARTICLE
by Chaitali Mohile
Due to an overheated downtrend, Bank of America has recovered from a single-digit to a double-digit value. The stock awaits a bullish breakout.
Position: Buy
Chaitali Mohile
Active trader in the Indian stock markets since 2003 and a full-time writer. Trading is largely based upon technical analysis.
PRINT THIS ARTICLE
CONSOLID FORMATION
BAC Enters Bullish Consolidation
07/23/09 09:30:52 AMby Chaitali Mohile
Due to an overheated downtrend, Bank of America has recovered from a single-digit to a double-digit value. The stock awaits a bullish breakout.
Position: Buy
| The market turbulence in the 2007-08 slump drove many stocks to single-digit values, including Bank of America (BAC). The financial crisis across the globe did affect the banking stock directly, hammering the bank index. Due to the same reason, BAC slipped below its highest levels of $50. In February 2009, BAC made its new low at $2.25; the full stochastic (14,3,3) in Figure 1 rested in an oversold zone. Earlier, the stochastic oscillator flowed down, forming lower highs, indicating strong bearish force. After establishing support in the highly oversold area in February 2009, the indicator surged above the 20 levels, reflecting a buy signal for long-term traders. On the price chart in Figure 1, BAC formed a bullish engulfing pattern -- a bullish reversal candlestick pattern -- at the bottom, supported by high volumes. The bullish candle of the pattern is considerably large, signifying a strong buying force. The upper two white candles of April and May 2009 have long upper shadows. This shows that BAC was unable to sustain near the highs of respective months. The arrows are marked in Figure 1 to highlight the long upper shadow. |
|
| FIGURE 1: BAC, MONTHLY. The long upper shadows of the bullish candles shows decelerating buyers' force to close near the high. |
| Graphic provided by: StockCharts.com. |
| |
| A small bullish candle (June) and a doji for the current month (July) can be seen on the monthly time frame in Figure 1. The doji candlestick is yet to be confirmed; we will set a wait-and-see strategy as BAC consolidates. The overheated downtrend has generated the bullish reversal rally. Although the average directional movement index (ADX) (14) is declining from an overheated level at 50, the downtrend has not reversed. The descending bearish trend would weaken the selling pressure and enhance the bull's confidence. As a result, the price rally would definitely climb higher after the consolidated move. The moving average convergence/divergence (MACD) (12,26,9) is below the trigger line in negative territory. The overheated downtrend, the negative MACD (12,26,9), and the oversold stochastic (14,3,3) would drag the stock in a consolidation range. |
|
| FIGURE 2: BAC, WEEKLY. The MA resistance at $38 and an overbought stochastic (14,3,3) were alarming bearish signals, resulting in the robust correction of BAC. |
| Graphic provided by: StockCharts.com. |
| |
| BAC is consolidating in a converging range below the 50-day moving average (MA) resistance. Since 2008, the 50-day MA has suppressed the price action in Figure 2 by descending along with the price. The bullish rally from the new low at $2.52 consolidated marginally below the MA resistance, forming a bullish flag & pennant pattern. The bullish breakout would gain strength after establishing support above the 50-day MA. In addition, the range between $15 and $17 is a previous high resistance zone. So the significant bullish strength is the most essential ingredient for an upward breakout. Instead of calculating the potential breakout target on the pattern, the 200-day MA resistance level can be readily observed as a target. |
| Though the stochastic (14,3,3) is shaky in the highly overbought region, the bullish momentum would be sustained till the indicator withholds the center line support (50 level). The ADX (14) suggests a developing uptrend in Figure 2, and the positive MACD (12,26,9) is likely to surge in positive territory. Thus, the indicators are reconfirming the stability of a bullish rally above the resistance zone. The confirmed breakout level, with stop losses in place, can be a good buying place for short-term traders. |
Active trader in the Indian stock markets since 2003 and a full-time writer. Trading is largely based upon technical analysis.
| Company: | Independent |
| Address: | C1/3 Parth Indraprasth Towers. Vastrapur |
| Ahmedabad, Guj 380015 | |
| E-mail address: | chaitalimohile@yahoo.co.in |
Traders' Resource Links | |
| Independent has not added any product or service information to TRADERS' RESOURCE. | |
Click here for more information about our publications!
Comments
Date: 07/23/09Rank: 3Comment:
|
Request Information From Our Sponsors
- StockCharts.com, Inc.
- Candle Patterns
- Candlestick Charting Explained
- Intermarket Technical Analysis
- John Murphy on Chart Analysis
- John Murphy's Chart Pattern Recognition
- John Murphy's Market Message
- MurphyExplainsMarketAnalysis-Intermarket Analysis
- MurphyExplainsMarketAnalysis-Visual Analysis
- StockCharts.com
- Technical Analysis of the Financial Markets
- The Visual Investor
- VectorVest, Inc.
- Executive Premier Workshop
- One-Day Options Course
- OptionsPro
- Retirement Income Workshop
- Sure-Fire Trading Systems (VectorVest, Inc.)
- Trading as a Business Workshop
- VectorVest 7 EOD
- VectorVest 7 RealTime/IntraDay
- VectorVest AutoTester
- VectorVest Educational Services
- VectorVest OnLine
- VectorVest Options Analyzer
- VectorVest ProGraphics v6.0
- VectorVest ProTrader 7
- VectorVest RealTime Derby Tool
- VectorVest Simulator
- VectorVest Variator
- VectorVest Watchdog