Agrium Hitting Previous High

08/20/12 11:28:44 AM

by Chaitali Mohile

The bullish rally of Agrium has overcome previous losses and has reached its previous high resistance. Is the stock waiting for a bullish breakout.

Security: AGU
Position: Buy

In 2011, Agrium had plunged from 97.23 levels. In the chart in Figure 1 note the series of lower highs formed by the full stochastic (14,3,3). The oscillator moved against the price rally, forming a negative divergence. Although the average directional index (ADX) (14) was suggesting a developed uptrend, it failed to carry the stock higher. Therefore, lack of bullish momentum was the only technical reason for the descending rally of AGU.

Eventually, the stock breached its 50-day moving average (MA) support and drifted toward the 200-day moving average (MA) support. However, it successfully established support at its long-term MA, stabilizing the downward price rally.

During this drop, the stochastic oscillator was very volatile in between the 20 and 80 levels. The stock also lacked firm trend support. The ADX (14) showed the directionless trend with equal buying and selling pressure.

In such a scenario, the stocks usually undergo a major correction. But the robust support of the 200-day MA protected AGU from additional damage. Instead, the stock initiated a pullback rally with the MA support. Gradually, the stock began to surge and converted the 50-day resistance to support. The buying pressure indicated by the positive directional index (+DI) (green line) remained steady above the negative directional index (-DI) (red line). Thus, the relief rally could regain all the previous losses.

FIGURE 1: AGU, WEEKLY

Graphic provided by: StockCharts.com.

Currently, AGU has reached the prior high pivot at 97.23 levels. The stochastic oscillator is highly overbought but not showing any reversal sign. This momentum oscillator could remain overbought for a longer time, continuing the existing bullish rally. A fresh uptrend is developing in Figure 1. Hence, we can anticipate a bullish breakout above 97.23 levels.

FIGURE 2: AGU, MONTHLY

Graphic provided by: StockCharts.com.

According to the monthly time frame chart in Figure 2, AGU made an all-time high at 110 levels in 2008. Note the extremely bullish indicators. The stock nosedived from 110 levels, challenging the ascending 50-day MA support.

But the stock regained its rally. Note how the two plunging indicators stabilized. The full stochastic (14,3,3) surged, forming higher lows with the support of 20 levels. The overheated uptrend slipped down to the developing trend level at 20. Thus, the price rally surged with the 50-day MA support, forming a series of higher lows and higher highs. AGU has moved very close to its historical high at 110 levels.

The technical conditions on both charts (Figures 1 and 2) are favorable for a possible bullish breakout above 110 levels. This breakout could breach the robust resistance, which could in turn induce huge bullish pressure and attract new buyers. Thus, 110 would be the best place to trigger long positions for long-term trading.

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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Agrium Hitting Previous High

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