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ON BALANCE VOLUME


Signs Of Accumulation In Tektronix

02/22/07 11:03:05 AM
by Arthur Hill

Tektronix fell off a cliff in December 2006, but immediately firmed and now shows signs of buying pressure over the last two months.

Security:   TEK
Position:   Accumulate

First, let's take a look at volume and signs of buying pressure. Volume on up days has been higher than volume on down days and this powered the on-balance volume (OBV) to new highs recently. A simple visual inspection of the volume bars shows that the black bars (up days) are higher than the red bars (down days). This shows that more money is moving into the stock than out.

OBV is a cumulative indicator that adds volume on up days and subtracts volume on down days. The cumulative effect of this up/down volume days is measured in OBV and this indicator has been moving higher since mid-December. Even when the stock was down in January, the OBV held firm and broke resistance at the end of the month. Joe Granville theorized that volume precedes price and this indicator points to higher prices for TEK.

FIGURE 1: TEKTRONIX, DAILY. TEK appears to have buying pressure in the past several months.
Graphic provided by: Telechart 2007.
 
On the price chart (Figure 1), TEK recently broke resistance and surged after a Bollinger Band consolidation. The bands narrowed significantly last week and this reflected a volatility contraction (black arrow). Volatility contractions are often followed by volatility expansions and the stock broke above the early February high. In addition, prices moved above the upper Bollinger Band and this shows some strength behind the breakout.

The combination of strong OBV, a volatility contraction/expansion, and an upside breakout point to higher prices for TEK. The first upside target is resistance from November high around 43. A move below last week's low (28) would negate this breakout and call for a reassessment.



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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