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BMC Bounces On Good Volume

04/24/06 10:06:00 AM
by Arthur Hill

BMC Software shows signs of accumulation, and a consolidation breakout looks increasingly likely.

Security:   BMC
Position:   N/A

On the price chart, BMC Software (BMC) surged with the broader market from mid-October until early January and then consolidated the last three months (gray box) (Figure 1). Prices have traded between 21 and 23 since February and the range is quite tight. A break above 22.5 resistance would be bullish and a break below 21 support would be bearish.

FIGURE 1: BMC SOFTWARE. BMC surged with the broader market from mid-October until early January and then consolidated the last three months (gray box).
Graphic provided by: MetaStock.
For clues on the direction of the next break, I am turning to on-balance volume (OBV) and the accumulation- distribution line. Both indicators use volume to gauge buying pressure and selling pressure. The security has been trading flat, but both indicators are rising and hit new highs recently. This shows that buying pressure has been strong within the consolidation. A look at actual volume confirms this buying pressure. Note that the up days (black volume bars) are consistently higher than the down volume days (red volume bars). This is what the bulls want to see: more money moving in on advances and less money moving out on declines.

Volume indicators point to an upside breakout and the prior move was up. The advance from mid-October until early January sets the bullish tone and the subsequent consolidation is viewed as a rest after this advance. Stocks don't always go straight up and a period of consolidation is often required to digest gains. As long as support at 21 holds, I would expect a continuation breakout at 22.5 and a move to the upper 20s.

Arthur Hill

Arthur Hill is currently editor of, 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 and the main contributor to the ChartSchool.

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Date: 04/29/06Rank: 4Comment: 

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