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BREAKOUTS


The Breakout Rallies Of ADC

02/25/13 02:10:47 PM
by Chaitali Mohile

After the bullish breakout, Agree Realty Corp. is moving on up.

Security:   ADC
Position:   Buy

Agree Realty Corp (ADC) is heading up to a new high. The stock has climbed higher with robust bullish strength. The bullish journey of the average directional movement (ADX) was not one sided, as the price rally consolidated after every up move. The stock has formed a few bullish continuation formations on the daily and weekly time frame charts.

The bullish flag & pennant pattern you see in Figure 1 is the most recently formed bullish continuation pattern. ADC moved sideways after an advance rally. During this bullish journey, the stock jumped a few points, thus forming a small gap up. This gap is now filled by the descending consolidation range. Traders need not worry about the declining trading range, as an uptrend is still in a well-developed region above the 30 levels.

The ADX(14) in Figure 1 has plunged from overheated levels to the well-developed region. Therefore, the descending ADX would only create extra room for the trend to move in a bullish direction. The full stochastic (14,3,3) is ready to surge above 50 levels, indicating an upcoming buying opportunity for traders. It also suggests a developing bullish momentum in the stock.


FIGURE 1: ADC, DAILY
Graphic provided by: StockCharts.com.
 
Hence, the bullish flag & pennant formation of ADC is likely to break in an upward direction. The potential target of this pattern is measured by adding the length of the flag pole to the breakout point. Here, the length of the flag pole is 3.5 (29 - 25.5 = 3.5) and the breakout point is 28.5. Therefore, we get the target of 28.5 + 3.5 = 32. Short-term traders can trigger long positions once ADC sustains above the upper consolidation range; $29 would be a low-risk entry point.

The flag & pennant pattern is formed twice on the weekly time frame chart in Figure 2. Earlier, ADC consolidated after breaching the psychological resistance at 25 levels, formed by the previous high pivot. The bullish rally in mid-2012 initiated a fresh uptrend for ADC. After forming a double-bottom formation in an oversold zone, the stochastic oscillator climbed vertically. These bullish notes helped the rally breach the previous high resistance (see the horizontal red line) in Figure 2. The horizontal price rally formed the bullish flag & pennant pattern on the newly formed support line.

The bullish breakout of this pattern continued the previous rally. The indicators moved simultaneously and soon hit extreme bullish levels. As a result, ADC consolidated before reaching the target of $31 (26 -20 = 6 + 25 = 31). This consolidation formed a second flag & pennant formation, as seen in Figure 2.

FIGURE 2: ADC, WEEKLY
Graphic provided by: StockCharts.com.
 
The recently formed bullish continuation pattern has occurred on both charts simultaneously; this gives major importance to the current formation. The bullish breakout could lead the stock to a new high of 32. Since both estimated levels (31 and 32) are in close vicinity, the bullish rally could pause at these levels.

Considering the current scenario, the breakout rallies of ADC is more suitable for short-term traders. If the stock continues forming this bullish continuation pattern, it could be one worth watching.




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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