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CHART ANALYSIS


Amgen At New High

01/30/13 11:39:03 AM
by Chaitali Mohile

Amgen has sustained a new high.

Security:   AMGN
Position:   N/A

In 2006, Amgen (AMGN) formed a top at $83. A top formation is a bearish reversal formation. At that time, AMGN appeared reluctant to surge above $83. The stock formed two dragonfly doji, and other candlesticks formed long upper shadows, indicating uncertainty in an existing bullish rally. The full stochastic (14,3,3) formed a lower high, highlighting a negative divergence for AMGN. A bullish trend failed to develop, and so, the stock reversed from the new high of $83.

After that, AMGN began its downward journey toward the 200-day moving average (MA) support. The bearish rally failed to develop a strong downtrend. The average directional index (ADX) (14) could not surge above 20 levels, and the stock witnessed equal buying and selling pressure, resulting in a volatile bearish move. Although AMGN established support at the long-term MA support (Figure 1) and began ascending, it failed to attract fresh buying pressure. The shaky stochastic oscillator climbed in an overbought zone, indicating upcoming bullish momentum.

FIGURE 1: AMGN, MONTHLY
Graphic provided by: StockCharts.com.
 
After establishing support at the 50-day moving average (MA), AMGN turned strong. The positive directional index (+DI) of the ADX (14) increased dramatically, developing a fresh uptrend for the stock in Figure 1. Eventually, the price converted the previous high resistance to support and hit a new high in the last quarter of 2012. Currently, the stock is likely to consolidate with the newly formed support. This sideways action is healthy for the existing price rally, as it would gather additional bullish strength for the future bullish rally.

The bullish consolidation has formed a bullish flag & pennant -- a continuation pattern -- in Figure 1. A potential bullish breakout would be the best low-risk buying opportunity for traders. The minimum estimated target is measured by adding the length of the flag pole to the breakout levels. Therefore, 83 - 55 = 28 (length of pole) + 92 (approximate breakout levels) =120 is the target of AMGN.

After a confirmed breakout, traders can trigger long positions in AMGN. The ADX (14) is suggesting a well-developed uptrend; therefore, the stock is likely to consolidate. In addition, the previous high pivot has offered robust support to the lower range of the horizontal price rally. Thus, the bullish continuation formation and the signals from the two oscillators show strength in AMGN.



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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