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NEW HIGHS-NEW LOWS


For Allergan, Another New High, But With A Warning

09/30/11 09:31:24 AM
by Donald W. Pendergast, Jr.

Many times, buying a stock with a new 52-week high can be a nice, conservative way for traders and investors to make some money. But sometimes a different course of action may be warranted.

Security:   AGN
Position:   N/A

This article isn't going to give a general buy or sell signal but will rather attempt to alert traders to the deteriorating money flow situation in shares of Allergan (AGN), a fairly large player in the pharmaceuticals industry group. First off, the stock is in a very strong technical posture, what with its latest triple-top buy setup already in place and strong up swing move from the August lows still going strong. However, astute technicians will want to take note of the steadily declining long-term money flow histogram (bottom of the chart), which is based on the 100-day Chaikin money flow.

Note how the histogram made a lower high each time that the price of the stock made a new swing high (at points 1, 2, and 3 on the chart). This is an early warning of sorts that the big money interests (mutual funds, and so on) are gradually paring back their exposure to AGN. Without the ongoing support of such institutions, it's going to be difficult for the stock to make much headway, even if there is a successful break above the swing high at point 3 on the chart.

A failure of the triple top buy setup would probably mean at the very least a trip down toward the red dashed uptrend line (near $83 or so), if not all the way down toward significant chart support between $77 and $79 (blue shaded area on Figure 1). In some cases, a failure swing opens up the door for a major reversal, so be on guard against that if you are already long shares of AGN. Forewarned is forearmed, as the old saying goes, and in the case of this particular chart, that might be very timely advice.

FIGURE 1: AGN, DAILY. A triple-top buy setup can be a very exciting prospect for bulls, but always be sure to take a look at the longer-term money flow trend before committing funds to a stock offering such a setup.
Graphic provided by: MetaStock.
 



Donald W. Pendergast, Jr.

Donald W. Pendergast is a financial markets consultant who offers specialized services to stock brokers and high net worth individuals who seek a better bottom line for their portfolios.

Title: Writer, market consultant
Company: Linear Trading Systems LLC
Jacksonville, FL 32217
Phone # for sales: 904-239-9564
E-mail address: lineartradingsys@gmail.com

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