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RETRACEMENT


Ding Dong! Avon Calling All Bulls

01/21/05 09:06:53 AM
by Arthur Hill

With the S&P 500 down, January has been a grim month. However, Avon has a different story to tell.

Security:   AVP
Position:   Buy

With the Standard & Poor's 500 down around 3.2%, January 2005 has not been a nice month. However, Avon (AVP) has a different story to tell, with a recent breakout.

The long-term trend for Avon is clearly up. There is a long trendline extending up from February 2000 and the December 2004 low touched this trendline for at least the fourth time in as many years. In addition to the higher lows, the stock has a series of higher highs and looks headed for another higher high in the coming months.

Figure 1: Avon. This decline had all the earmarks of a classic correction. First, the pullback retraced around 62% of the prior advance. Second, the pattern looks like a falling wedge of price channel. Third, the stock found support just above broken resistance (green line). Fourth, support around 37 was confirmed by the February 2000 trendline. What more could you ask for in a pullback?
Graphic provided by: MetaStock.
Graphic provided by: Reuters Data.
 
The most recent advance was from 30.66 to ~46.65 (December 2003 to July 2004), and the stock then declined back to around 37. This decline had all the earmarks of a classic correction. First, the pullback retraced around 62% of the prior advance. Second, the pattern looks like a falling wedge of price channel. Third, the stock found support just above broken resistance (green line). Fourth, support around 37 was confirmed by the February 2000 trendline. What more could you ask for in a pullback?

How about a breakout confirmed with strong buying pressure? While the broader market succumbed to selling pressure over the last few weeks, AVP broke above the upper trendline of the falling wedge and exceeded its November/December highs. This signals a continuation of the current uptrend and projects further strength above the July high. The accumulation/ distribution line, which is a volume-based indicator, has already moved to a new high and shows continued strong buying pressure. Volume often leads price and this indicator points to new highs.



Arthur Hill

Arthur Hill is currently editor of TDTrader.com, a website specializing in trading strategies, sector/industry specific breadth stats and overall technical analysis. He passed the Society of Technical Analysts (STA London) diploma exam with distinction is a Certified Financial Technician (CFTe). Prior to TD Trader, he was the Chief Technical Analyst for Stockcharts.com and the main contributor to the ChartSchool.

Title: Editor
Company: TDTrader.com
Address: Willem Geetsstraat 17
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Phone # for sales: 3215345465
Website: www.tdtrader.com
E-mail address: arthurh@tdtrader.com

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Date: 01/21/05Rank: 4Comment: 
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