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CONSOLID FORMATION


Bemis In Tough Trading Range

04/13/10 11:28:13 AM
by Chaitali Mohile

After the bullish breakout, Bemis has entered a tight trading range that is likely to continue for a longer period.

Security:   BMS
Position:   N/A

Bemis Co. (BMS) was trading in a descending trading range of lower lows and lower highs (Figure 1). The full stochastic (14,3,3) tumbled from an overbought region, forming lower bottoms, while the average directional movement index (ADX) (14) indicated an overheated uptrend, suggesting the possibility of a trend reversal. Similarly, the negative moving average convergence/divergence (MACD) (12,26,9) slipped in negative territory as BMS plunged below the 50-day MA support. Although the stock lost a few points, it did not enter a bearish trend.

FIGURE 1: BMS, DAILY. The stock is consolidating with the support of the 50-day MA.
Graphic provided by: StockCharts.com.
 
All the indicators in Figure 1 immediately reversed from the bearish region and initiated a fresh upward rally from $27. Thereafter, BMS had an immediate target of the newly formed resistance of the 50-day MA. This new rally was the low-risk buying opportunity for traders, and the rise in volume confirmed the stability of the price action. The stochastic oscillator and the MACD (12,26,9) regained their bullish levels, indicating positive momentum, but the ADX (14) failed to surge above 20 with high buying pressure. The MA breakout failed to surge higher. The overbought stochastic turned volatile near 80 levels and suggested a lack of bullish strength to carry the breakout journey. In addition, the gap between the MACD and trigger line has narrowed. The breakout turned sideways and remained highly volatile.

The lower range of consolidation was very well guarded by the 50-day MA, whereas the upper range was controlled by the intraday highs marked by the upper shadows on the candlesticks. The previous descending consolidation also ruled the current range-bound activity of BMS. The stock has been consolidating for the few days, and the indicators in Figure 1 do not signal a breakout. The ADX (14) has moved to 10 levels, suggesting a weak trend. The selling and buying pressure indicated by the negative directional index (-DI) and positive directional index (+DI), respectively, are surging with equal pace. Therefore, BMS is likely to consolidate till the robust uptrend is developed. Though the stochastic and MACD (12,26,9) are indicating high volatility, they have sustained in the bullish zone. Thus, BMS would consolidate in a healthy bullish technical environment.

FIGURE 2: BMS, WEEKLY. The low of the big bullish candle was breached after more than four weeks.
Graphic provided by: StockCharts.com.
 
The 200-day MA is considered the long-term support/resistance of the stocks and indexes. For BMS, the 200-day MA was really the toughest technical tool to breach. In 2008, note the blue arrows; it was the robust resistance that pressured the stock downward. During the pullback rally in 2009, BMS struggled hard to convert the 200-day MA resistance to the support. Here, the stock turned sideways with the support and resistance of the MA. The ADX (14) that was directionless for the past few years grabbed the bullish path and slipped above the 20 levels, indicating an uptrend. The stock breached the consolidation range at 27 levels and initiated a new rally. The ADX (14) traveled from the developing to the developed uptrend area, and the full stochastic (14,3,3) continued its journey into the bullish area of 50 and 80 levels, while the MACD (12,26,9) zigzagged in positive territory. Once again, BMS witnessed bullish range-bound price action.

The yellow block shows the bullish strength of the single candlestick in healthy conditions of the BMS stock. The stock had to undergo more than four bearish weeks to breach the support (low) of the white candlestick. Later, the stock spurted with the support of the green dotted line at 27 levels in Figure 2. The small candles and long shadows showed weakness in the rally and also reflected the possibility of remaining sideways.

Thus, BMS is likely to consolidate for the next few trading sessions.




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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