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FLAGS AND PENNANTS


WMZ Consolidates At Support

07/01/10 08:30:10 AM
by Chaitali Mohile

Will WMZ see a bullish breakout?

Security:   WMZ
Position:   Buy

A Williams Pipeline Partners (WMZ) rally violated the previous high resistance at 31.50 levels. WMZ has surged from $27 to $33, gaining a profit of $6. After the new high at $33, the stock moved sideways. The relative strength index (RSI) (14) turned down from 70 levels, indicating weak bullish strength in the rally. The average directional movement index (ADX) (14) surged in a developing uptrend region above 25 levels; thus, WMZ underwent the bullish consolidation, forming a bullish flag & pennant pattern in Figure 1. The consolidation after the bullish rally accumulates the strength for the future breakout journey. During the sideways period, WMZ descended a few points and established support near the previous high. The support-resistance tools line is used in Figure 1 to mark the accurate support for the current rally.

FIGURE 1: WMZ, DAILY. During consolidation, the stock formed the bullish engulfing candlestick pattern.
Graphic provided by: StockCharts.com.
 
With this newly formed support, WMZ formed a bullish engulfing pattern in Figure 1. Since the RSI (14) and the ADX (14) are sustaining bullish zones, we can anticipate an upward breakout of the pattern. The consolidation period cannot be estimated, but the confirmed breakout would appear above $33 with increased volume. The potential target of the flag & pennant pattern is measured by adding the height of the flag pole to the breakout levels. Therefore, 33 - 27 = 6 + 33 (breakout level) = 39 is the breakout target. Traders can enter the long positions above 33 levels with the mentioned target.

FIGURE 2: WMZ, WEEKLY. The hanging man pattern halted the current rally.
Graphic provided by: StockCharts.com.
 
A hanging man candlestick pattern in Figure 2 shows the exhausted breakout journey of WMZ. The declining range broke upward at $28, but the plunging trend and a negative divergence suppressed the rally. However, WMZ is likely to consolidate with the existing bullish strength. The ADX (14) shows the developing uptrend, and the RSI (14) has support at 50 levels. According to Figure 2, WMZ would range between the support at $31 and resistance at $33. Thus, the bullish consolidation would successfully break upward and resume the bullish rally. The target for short-term as well as long-term traders is $39.



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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