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Breakout For Suntrust

03/21/06 10:10:36 AM
by Gary Grosschadl

What was the reason for the breakout?

Security:   STI
Position:   Buy

SunTrust Investment Services has been named the "Best Large Institution Program of the Year" for 2005 by the Bank Insurance & Securities Association. Figure 1, a weekly chart, shows a breakout occurring. Did the award fuel the rise? Typical of this bullish pattern of an ascending triangle, the pattern tightens until a break occurs. With good news or perception of good value, the pattern's bullish bias comes to fruition.

Volume provides important clues for most breakouts. Abnormal volume or at least a higher spike adds conviction to the move. Ideally, higher than normal volume continues to drive the rise, or there is danger of a false breakout. After the initial excitement is over, there can be a retest of the breakout point. This can be more telling and offers a chance at better prices for new buyers coming in as opposed to chasing the initial surge higher.

FIGURE 1: SUNTRUST, WEEKLY. This chart of STI shows a breakout for this financial services company.
Graphic provided by:
The indicators below Figure 1 confirm this bullish thrust. The moving average convergence/divergence (MACD) shows a bullish turn above its zero line, while the relative strength index (RSI) shows a bullish rise past its key 50 level. The stochastics oscillator shows an upleg occurring with upside room. The Chaikin money flow indicator shows a healthy growth in buying power.

The target for a triangle breakout is a move above the top trendline equal to the widest part of the formation. Ideally, this is $92 (see Figure 1) and may take some time to be realized. If this breakout fails and returns back inside the triangle, all bullish bets are off.

Gary Grosschadl

Independent Canadian equities trader and technical analyst based in Peterborough
Ontario, Canada.

E-mail address:

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