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TECHNICAL ANALYSIS


PRGO At 52-Week High

03/03/10 08:30:39 AM
by Chaitali Mohile

Perrigo is likely to sustain its bullishness, even at the new high.

Security:   PRGO
Position:   Buy

In 2008, Perrigo Co. (PRGO) lost nearly $10 in just a week by hitting resistance at $42.5. Later in September 2008, the relief rally reached lower highs at $40 and plunged even harder. The long corrective rally of PRGO that began from $40 touched the lowest low at $18. The stock value descended 50% by March 2009. Gradually, the pullback rally from the new low recovered previous losses and continued the healthy bullish journey. Although the fresh rally in Figure 1 offered many buying opportunities, the previous 2008 damages kept traders away. The stability of the rally was under surveillance, resulting in the low volume. The doji and bearish candles in Figure 1 show the volatility and uncertainty in the price rally. However, PRGO continued its bullish path with low volume. The average directional movement index (ADX) (14) developed a fresh uptrend, and thus, supporting the pullback rally.

FIGURE 1: PRGO, WEEKLY. The stock is ready to consolidate at the all-time high. The bullish indicator would "PRGO" to the new high in the near future.
Graphic provided by: StockCharts.com.
 
Eventually, PRGO hit the first previous high resistance at $40 levels. The two red dotted lines show the resistance at $40 and $42 in Figure 1. After the stable advance rally from $30, PRGO consolidated under the resistance of $40. Meanwhile, the relative strength index (RSI) (14) surged in an overbought zone above 70 levels. The oscillator continued the bullish journey in the overbought area, indicating a healthy upward rally. The moving average convergence/divergence (MACD) (12,26,9) moved in positive territory and the uptrend developed as well. On these bullish notes, PRGO hit another resistance at $42 and converted both these resistance to strong support. The consolidation within these support-resistance levels formed a bullish flag & pennant continuation pattern in Figure 1. The pattern breakout breached both the resistance areas ($40, $42), and therefore, the rally has two robust supports. Since all indicators were healthily bullish during the breakout, you could expect the rally to move higher.

After the breakout, PRGO hit a 52-week high. The uptrend touched an overheated level above 40 but ADX (14) is not suggesting any trend reversal possibility. The RSI (14) has been overbought for more than four months, and the moving average convergence/divergence (MACD)(12,26,9) remains positive and steady in the positive region. Therefore, we can anticipate a slowdown in the upward rally before heading higher. PRGO would undergo a bullish consolidation at the new high, forming another bullish flag & pennant. Thus, PRGO would continue the bullish path. The stock has two robust supports at $42 and $40, so traders need not worry in case of an unanticipated corrective rally from the current higher level.

FIGURE 2: PRGO, DAILY. The stock is comfortably moving in the ascending channel.
Graphic provided by: StockCharts.com.
 
We can see in Figure 2, the daily time frame, PRGO has surged from the consolidation range of $38 and $41. The vertical rally is moving within the ascending channel. The ADX (14) is indicating an overheated uptrend on the daily time frame as well. The RSI (14) is marginally overbought and the MACD (12,26,9) has rested on the trigger line. Apart from the momentum indicator, the RSI (14) and ADX (14) are healthily bullish, suggesting the steady rally. But the MACD (12,26,9) may either bounce with the support of the trigger line or may undergo a bearish crossover by slipping below the red trigger line. Therefore, PRGO would undergo bullish consolidation in such conditions.

Thus, PRGO is one of the safe stocks even at the new high. According to current technical conditions on both the charts, the sideways price action would undergo a bullish breakout and would offer a low-risk buy setup.



Chaitali Mohile

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

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Date: 03/03/10Rank: 3Comment: 
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