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American Tower's Double Bottom

11/03/11 08:48:51 AM
by Koos van der Merwe

Is it time to take a second look?

Security:   AMT
Position:   Sell

Developments in Greece is once again affecting the market in the United States and the world. So once again stocks tumble on euro uncertainty, even though the economy of the US is recovering, albeit slowly. With a slow but sure recovery, is it time to take a second look?

Graphic provided by: AdvancedGET.
Figure 1 is a daily chart of American Tower (AMT) and shows an Elliott wave count that suggests that the stock could be starting a wave 2 down of a wave V up. This is confirmed by the stochastic indicator, which is at overbought levels and suggesting weakness ahead. The share price also formed a candlestick doji formation. This is an important one-day formation formed when the open and close of a day's trading session are the same, or very close, and an upper or lower shadow or both exist.

A doji does suggest a reversal in trend. However, there are occasions when a doji formation may occur and the market does not change direction. This usually happens when the open and close are not equal, as shown on the chart by the doji I have labeled with an asterisk. The doji currently shown has the open and close very close together, suggesting that a reversal has a good chance of occurring.

Finally, do note that the doji upper shadow is above the Bollinger Band, a further suggestion of weakness ahead.

We could expect the share price to retest the double bottom at $46.31, but I would rather look to a Fibonacci retracement level somewhere in the region of $49.41 (a 72% retracement) and $50.63 (a 61.8% retracement.)

AMT is a share we should place on our watchlists for a future buy. Is it time to do so? Not yet, but soon.

Koos van der Merwe

Has been a technical analyst since 1969, and has worked as a futures and options trader with First Financial Futures in Johannesburg, South Africa.

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