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Pharma HOLDRS Consolidate Above Resistance Break

05/19/05 09:48:27 AM
by Arthur Hill

After a breakout in mid-April, the Pharma HOLDRS formed a triangle above resistance, and volume flows pointed to an upside breakout.

Security:   PPH
Position:   Accumulate

While the broader market moved lower in April, the Pharma HOLDRS (PPH) broke above resistance as money moved into this sector. The breakout occurred on high volume (green arrow) and broken resistance turned into support with a successful test at 73.5 (gray arrows) (see Figure 1). These bounces reinforce support at 73.5 and a move back below would be most detrimental.

Figure 1: PPH. The Pharma HOLDRS broke above resistance as money moved into this sector. The breakout occurred on high volume (green arrow) and broken resistance turned into support with a successful test at 73.5 (gray arrows).
Graphic provided by: MetaStock.
Graphic provided by: Reuters Data.
 
As long as support at 73.5 holds, I would consider the current triangle consolidation bullish. The prior move was up (68.26 to 76.45) and the current move is flat. This prior advance favors a continuation higher and a move above the May high would be bullish. Note that volume contracted during the consolidation. This is normal, and volume should expand to validate any breakout.

Despite relatively low volume the last few weeks, the accumulation/distribution line moved to new highs. This suggests accumulation within the consolidation. The stock has traded in a tightening range since mid-April, but strength in this volume indicator reflects buying pressure. Accumulation is bullish and often precedes a breakout.



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.

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