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BREAKOUTS


LORL Eager To Break Out

08/26/10 12:35:40 PM
by Chaitali Mohile

Loral Space & Communication has been traveling in bullish atmosphere. A likely breakout could give it a boost.

Security:   LORL
Position:   Buy

Loral Space & Communication (LORL) has been respecting the upper and lower ends of the Bollinger band (20,2,0). The indicator is one of the best tracking systems for breakouts as well as for regular trading. A system trade can be followed between the upper and lower bands of the indicator. According to Figure 1, LORL has been moving above the center line for a longer time, indicating consistent bullish strength throughout the period. The stock continued to travel along with the upper band. However, the band resistance was never breached. After hitting the upper band, the stock has retraced back towards the center line.

FIGURE 1: LORL, DAILY
Graphic provided by: StockCharts.com.
 
Recently, LORL witnessed robust bullish trading sessions that have challenged the strength of the upper band. The last four bullish candles in Figure 1 are showing willingness to break the Bollinger band. All the four white candles have made the new highs and have closed above the upper band. This shows that there could be some significant force in the rally, which would possibly result in a bullish breakout.

FIGURE 2: LORL, DAILY
Graphic provided by: StockCharts.com.
 
Figure 2 also shows a daily chart with the indicators and the price chart to understand the potential and stability of the breakout. The price chart shows a bullish breakout of a flag & pennant -- a continuous formation of LORL. Increased volume confirms the stability of the breakout. The average directional index (ADX) (14) shows a developed uptrend, and the relative strength index (RSI) (14) is indicating a bullish force in the breakout rally. The positive moving average convergence/divergence (MACD) (12,26,9) signifies positive momentum.

Therefore, LORL has already broken the flag & pennant formation and is ready to surge above the upper Bollinger band resistance.


FIGURE 3: LORL, WEEKLY
Graphic provided by: StockCharts.com.
 
On the weekly time frame, the stock has formed a long-term rising wedge formation, a bearish reversal pattern. But it seems that the pattern is likely to undergo a bullish breakout against the pattern's technical direction -- a bearish breakout. The RSI (14) is climbing an overbought region with no reluctance. The MACD (12,26,9) is ascending with the support of the zero line in positive territory, and the uptrend in Figure 3 is developing. Therefore, the bullish indicators would help the upward breakout of the rising wedge. The breakout would highlight a major pattern failure and initiate the new upward move. After the breakout, LORL should establish support at the upper trendline.

Thus, LORL should be ready to blast off further into bullish atmosphere very soon.



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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