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UPS Coils Tighter

02/01/06 10:30:34 AM
by Arthur Hill

United Parcel Service is stuck in a trading range, but weak relative performance suggests a break to the downside.

Security:   UPS
Position:   Sell

Figure 1 shows that United Parcel Service (UPS) declined from 80 to 75 in early December and then moved into a trading range. The stock has moved between 73.69 and 77.85 since December 21. This range tightened over the last few weeks, and the pattern looks like a symmetrical triangle (magenta trendlines). These are neutral patterns that required a break for a directional bias. A move above 77 would be bullish and a move below 74 bearish.

FIGURE 1: UNITED PARCEL SERVICE. UPS declined in early December before moving into a trading range. A study of this chart suggests that a support break is likely.
Graphic provided by: MetaStock.
Graphic provided by: MS QuoteCenter.
 
Bollinger Bands confirm the narrowing range. The upper and lower bands are drawing nearer as the range extends. This means that volatility is contracting and traders should prepare for a breakout. Like the symmetrical triangle, the Bollinger Bands do not provide a directional bias. They only hint that a breakout and significant move are likely sooner rather than later.

With no directional bias from the price chart, I will turn to the indicators for some clues. The top indicator shows UPS relative to the NYSE Composite. While the NYSE Composite moved to new highs recently, UPS is wallowing near its December lows. This shows relative weakness and favors a downside break. In addition, downside volume has been outpacing upside volume. The three biggest volume days over the last two weeks occurred on the downside. This tells me that money is moving out of the stock and a support break is likely.



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
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Date: 02/01/06Rank: 4Comment: 
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