Bunge Ltd. Taking Baby Steps

06/19/13 04:29:46 PM

by Chaitali Mohile

After a sharp correction, Bunge Ltd. is recovering in a narrow range.

Security: BG
Position: N/A

In 2009, Bunge Ltd (BG) initiated its pullback rally on strong bullish notes. The stock gained $50 in eight to nine months before hitting the resistance of the 50-day moving average (MA). Thereafter, the vertical rally of BG turned shaky. The stock retreated from the MA resistance, forming higher lows. The ascending relative strength index (RSI(14)) in Figure 1 had established support at the center line (50 level), inducing fresh bullish strength in the relief rally. As a result, BG immediately rushed upwards to hit resistance once again. The higher highs and lows have formed a long-term rising wedge.

Figure 1. Monthly chart of BG

Graphic provided by: StockCharts.com.

Although the 50-day MA resistance was converted to support in late 2012, BG continued to move within a narrow range. The tangled positive (green line) and negative directional index (red line) of the average directional index (ADX(14)) and an unstable moving average convergence/divergence (MACD(12,26,9)) in Figure 1 are two technical reasons for the volatile price rally. Due to a weak trend, BG moved horizontally. The long-term rising wedge has not matured yet, therefore, BG has continued to move in the narrow range. Since the upper and lower trendlines provide accurate resistance/support, long-term traders can trade within this range.

BG underwent a huge gap down in February 2013 and plunged below the 50-day MA support. Eventually, the 200-day MA support was also breached. The stock surged from $15 and converted the long-term MA resistance to support. The volatile price action formed a symmetrical triangle in a short time span. Considering the price movement on the monthly chart (Figure 1), this triangle is a continuous pattern. BG in Figure 2 is ready to establish support on the 50-day MA and upper trendline. The 200-day MA is the immediate resistance for the stock.

The MACD(12,26,9) is ready to undergo a bullish crossover marginally below the zero line. The buying pressure is improving, though the ADX line is below 20, and the RSI(14) is zigzagging near the 50 levels. The developing bullish force indicated by these indicators would help BG to break upwards.

Thus, look for BG to continue to take baby steps to regain its previous high. The twenty point gap between the upper and lower trendline of the rising wedge offers trading opportunities for short-term traders.

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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Bunge Ltd. Taking Baby Steps

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