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Autoliv Offers Long Retracement Entry Setup

08/11/09 08:33:09 AM
by Donald W. Pendergast, Jr.

As the broad market indexes pause to catch their breath, some fundamentally attractive, high relative strength stocks are offering another chance to get on board.

Security:   ALV
Position:   Buy

Autoliv, Inc. (ALV) markets and manufactures a wide range of automotive safety equipment, including airbags and seat belts. The stock has done very well in the wake of both the March 2009 and July 2009 broad market reversals and was up more than 210% in less than five months as recently as last week. The stock has just flashed a high-probability mechanical buy signal, potentially offering traders another chance to wring some more profits from this high-flying automotive star. A closer look is definitely in order.

FIGURE 1: ALV, DAILY. When a high relative strength stock from an outperforming industry group pulls back toward its 20-day EMA, a long buy signal may be one of the lowest-risk trade setups around. The goal for this trade is to capture quick profits on an anticipated reversal higher.
Graphic provided by: MetaStock.
The general technical layout of this particular daily chart (Figure 1) should be familiar to regular Advantage readers by now. The stock is in a well-defined uptrend (higher swing highs and higher swing lows), its long-term money flow (depicted by the Chaikin money flow (CMF)(100)) is supportive of further upside potential, the Aroon (14) trend intensity indicator is still in nominal bullish mode and, last but not least, a simple but highly effective mechanical trading system has just issued a buy signal for this particular stock. Note how the stock has already completed a proportional retracement against the current trend even as it approaches its 20-day exponential moving average (EMA), a likely support barrier. Taken as a whole, this is a very low-risk long trade setup.

There are other factors that weigh heavily in favor of a long entry here in ALV; for starters, the stock is easily outperforming the Standard & Poor's 500, based on a 13-week rate of change calculation. It's also wildly outperforming the S&P 500 on yet another front, as measured by the weighted average of its three-, six-, and 12-month performance rankings. Finally, the stock also hails from the automotive-related stock industry group, a group that just happens to be outperforming virtually every other industry group out there.

When a stock has this much technical firepower in its corner, and the broad markets are also in major uptrends, taking aim on a long trade setup like this is anything but a long shot. Put as many of the odds as you can in your favor before putting your money into any given trade, and hopefully over time, you'll be well-rewarded.

Donald W. Pendergast, Jr.

Donald W. Pendergast is a financial markets consultant who offers specialized services to stock brokers and high net worth individuals who seek a better bottom line for their portfolios.

Title: Writer, market consultant
Company: Linear Trading Systems LLC
Jacksonville, FL 32217
Phone # for sales: 904-239-9564
E-mail address:

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Date: 08/12/09Rank: 5Comment: 

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