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BREAKOUTS


Chemed Corp Racing In Tricky Range

12/19/12 01:12:54 PM
by Chaitali Mohile

The converging trendlines of a long-term pattern has restricted the price movement of Chemed Corp. The stock is waiting for a breakout.

Security:   CHE
Position:   N/A

Chemed Corp (CHE) hardly breached its 50-day moving average (MA) support in 2008. The stock regained support, initiating a pullback rally. This indicated stable bullish strength in the stock. During this process, the price formed higher lows with a steady high, forming an ascending triangle (Figure 1). Since the triangular formation is formed at the top of a volatile bullish rally, we consider it to be a bullish continuous pattern that breaks in an upward direction.

FIGURE 1: CHE, MONTHLY
Graphic provided by: StockCharts.com.
 
The average directional index (ADX) (14) is below 15 levels with tangled positive and negative directional index, suggesting a volatile consolidation. The relative strength index (RSI)(14) is ranging in bullish territory between 50 and 60 levels. The moving average convergence/divergence (MACD) (12,26,9) is rallying in the bullish region above the zero line. The MACD line and the trigger line are frequently zigzagging, suggesting high volatility in the price rally.

According to these indicators, CHE is likely to move in the narrowing range of the two trendlines. Currently, an upward breakout is not indicated in Figure 1, but in near future the long-term ascending triangle would breach the upper trendline resistance and resume the prior advance rally.

All the indicators have turned completely bullish to initiate the bullish breakout for CHE in the long term.

FIGURE 2: CHE, DAILY
Graphic provided by: StockCharts.com.
 
The stock is descending with support of the 50-day MA on the daily time frame chart in Figure 2. After hitting a top at 72 levels, CHE began declining with huge bearish pressure. In the first two trading sessions CHE plunged to 67 levels, losing almost $5. Thereafter, the stock formed lower highs and lower lows, forming a descending channel. In mid-November, the stock had breached the lower trendline support; however, it recovered immediately.

Currently, CHE has formed a bearish engulfing pattern in the support-resistance zone of the 50-day MA and the upper trendline. The candlestick pattern suggests that the stock is ready to retrace toward the lower trendline support. The jittery relative strength index (RSI)(14) and the developing uptrend would dominate price movement. The stock would continue to descend within the channel. Since the trading range is very narrow, volume would remain low.

Thus, the converging trendlines of an ascending triangle of CHE would further narrow the trading range. However, traders can remain watchful for the bullish breakout in the near future.




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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