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BREAKOUTS


WYNN Resort Heading Toward New High

07/20/11 11:14:53 AM
by Chaitali Mohile

Will the bullish breakout of WYNN sustain a new high?

Security:   WYNN
Position:   Buy

A consolidation range between 140-151 was breached on the lower end by WYNN Resorts Ltd. (WYNN). The rectangle in Figure 1 shows the lower range (140) breaking downward, which developed an intermediate bearish trend for the first time in the past six months. The average directional index (ADX) (14) and the selling pressure (negative directional index, -DI) surged above 20 levels, indicating the developing downtrend for WYNN. As a result, the stock plunged to 128 levels, losing 28 points from the breakout level. Since the downtrend survived for a short period of time, WYNN consolidated at 128 levels and initiated a pullback rally. The stock violated the consolidation resistances, and surged higher. The rally reversed the downtrend and once again developed an uptrend for the stock.

FIGURE 1: WYNN, DAILY
Graphic provided by: StockCharts.com.
 
Later, the bullish move turned sideways at 160 levels, forming a bullish flag & pennant pattern on the daily time frame in Figure 1. Since the formation is bullish continuous, an upward breakout of WYNN would resume the existing bullish rally. We can see that the stock has already violated the breakout point at 160 levels, gaining 4 points. Here, we have to stay watchful as the ADX (14) is approaching an overheated level (40) and the relative strength index (RSI) (14) is overbought at 73 levels. Hence, the breakout is likely to proceed slowly.

The breakout target for WYNN can be measured by adding the length of the flag pole to the breakout point: 160 - 130 = 30 + 160 = 190. Although the target looks pretty attractive for short-term as well as long-term traders, the current position of the indicators must be considered before initiating the long trade.

FIGURE 2: WYNN, MONTHLY
Graphic provided by: StockCharts.com.
 
According to the monthly chart in Figure 2, WYNN has resistance at 145 levels. Earlier, an evening star candlestick -- a bearish reversal formation -- developed this (145) resistance. A marginally overbought RSI (14) and the descending uptrend enhanced the bearish hold on the rally. WYNN dropped to $12, where it formed a bullish reversal candlestick pattern -- a morning star. The relief rally generated by the morning star pattern has a robust buying force to reach the previous high resistance at 145 levels. We can see the two doji candlesticks in Figure 2, showing significant reluctance to breach resistance. The price action in the current month is likely to convert the resistance to support. Currently, the stock has reached 164 levels, indicating resistance breakout. However, we will need more confirmation as the RSI (14) has hit previous overbought levels (see the dotted line) and the ADX (14) is rallying in an overheated uptrend region.

Therefore, it is essential for WYNN to sustain above the resistance level to initiate the confirmed breakout rally. Once the breakout occurs, WYNN will present good buying opportunities for traders. The bullish flag & pennant breakout on the daily time frame would be slow till WYNN establishes long-term support.



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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