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BREAKOUTS


Pfizer Bullish Breakout

01/12/12 08:27:26 AM
by Chaitali Mohile

The bearish phase of Pfizer is likely to end.

Security:   PFE
Position:   Buy

The monthly chart of Pfizer (PFE) was dominated by the 50-day moving average for about eight years. The declining moving average compelled the price rally to follow its direction. A robust downtrend, a bearish momentum, and absence of bullish strength were the reasons behind Pfizer's underperformance. In 2009, the bearish rally began reflecting a few bullish reversal signs on the monthly time frame chart. The stock tried to pull back from the new low at $10. Again, the 50-day MA suppressed this rally as well. After PFE formed a shooting star candlestick pattern, the price plunged to a new higher low at 14 levels. The higher low formation was the first bullish indication formed on the monthly time frame chart in Figure 1 since 2002.

The relative strength index (RSI) (14) as well as the moving average convergence/divergence (MACD) (12,26,9) formed a series of higher lows and highs, generating fresh bullish sentiments for the upcoming bullish rally. The average directional index (ADX) (14) dipped to 20 levels, suggesting a bearish trend reversal for PFE. On these positive notes, the stock surged toward the newly developed 200-day MA resistance, converting the 50-day MA resistance to support. The price rally again retraced from the MA resistance, but the short-term MA extended support to the declining action. Here, PFE formed another higher low.

FIGURE 1: PFE, MONTHLY. The stock plunged from $30 to $10 in the past eight years.
Graphic provided by: StockCharts.com.
 
Meanwhile, the buying pressure indicated by the positive directional index (+DI) had marginally increased, the MACD (12,26,9) climbed in positive territory, and the RSI (14) was healthily overbought. As a result, PFE was able to breach the long-term MA resistance with the strong support of 50-day MA. The price rally formed a three white soldier candlestick pattern, suggesting a bullish reversal for PFE. But the indicators were still reluctant to surge in a healthy bullish zone.

The ADX (14) has not developed a fresh uptrend, the MACD (12,26,9) is shaky in positive territory, and the ascending RSI (14) is range-bound within the bullish zone. Therefore, traders should watch for more confirmation from the oscillators and wait for the price rally to establish 200-day MA support.

FIGURE 2: PFE, WEEKLY. Due to the range-bound RSI (14), the bullish rally is likely to remain sideways for the next couple of sessions.
Graphic provided by: StockCharts.com.
 
After a rounded-top bearish breakdown, PFE tumbled below a 50-day MA support. However, the stock immediately initiated an upward rally with the 200-day MA support. Later, the stock reached to a new high at $21 levels. The ADX (14) is showing a developing uptrend, and the RSI (14) is in overbought zone. We can see in Figure 2 that the strength oscillator has not surged above the 70 levels, and so, the indicator would remain overbought to accumulate essential strength for breaching the resistance. This could result in a bullish consolidation of price rally. The MACD (12,26,9) is positive, and the uptrend is developing.

Thus, PFE is likely to consolidate at the new high, and the stock would sustain above 200-day MA in Figure 1. Therefore, the bullish breakout of PFE would undergo a stable rally.




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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