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Pilgrim's Pride Surges Through Resistance

09/20/06 08:52:43 AM
by Arthur Hill

A high-volume breakout opens the door to higher prices for Pilgrim's Pride.

Security:   PPC
Position:   Accumulate

After falling from January to April, Pilgrim's Pride (PPC) surged in April and then began a long consolidation to digest these gains. This consolidation extended into September and took the form of a falling flag (blue trendlines). It is a bit long for a flag, but the essence of the pattern is there (sharp advance and slight correction). I drew through the July high and August low to make the trendlines parallel. I am not using these trendlines as exact support/resistance lines. Instead, these trendlines mark the downward trajectory over the last few months (Figure 1).

The downward trajectory established by the long flag was clearly reversed with a big breakout over the last five days. PPC broke above the upper trendline and exceeded its May high. This calls for a continuation of the April advance and the upside target is the next resistance zone around 34. This level is marked by the December high.

FIGURE 1: PILGRIM'S PRIDE. The downward trajectory established by the long flag was reversed with a big breakout over the last five days.
Graphic provided by:
Graphic provided by: Telechart 2007.
I also added a couple of key moving averages to the chart for good measure. The magenta line marks the 200-day moving average and the green line marks the 50-day moving average. The surge broke both of these key resistance lines and volume reinforces the breakout. A breakout is only as strong as the volume behind it. Volume is like fuel and the surge in volume shows plenty of fuel to power the stock higher.

Despite a solid breakout and the prospects for higher prices, it is prudent to identify levels that would mark a failure. Broken resistance turns into support and I would expect the stock to hold 25.5, which is marked by the flag break and the 200-day moving average. A move below this level would be negative and a break below the September low would be outright bearish.

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: 09/23/06Rank: 4Comment: 

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