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ASCENDING TRIANGLES


Move Begins In Hewlett-Packard

05/09/07 11:28:12 AM
by Chaitali Mohile

Having formed an ascending triangle, Hewlett-Packard is now ready to break out.

Security:   HPQ
Position:   Buy

Hewlett-Packard in Figure 1 has formed an ascending triangle, showing some price congestion at $42.50 with an overbought relative strength index (RSI) (14) above 70. The price retraced to $37.50. But being in a strong uptrend and a bullish rally, the stock reached its previous high of $42.50 with an above-margin volume.

The RSI (14) shows bullish strength. The indicator hasn't moved below its 50 mark ever. The moving average convergence/divergence (MACD) indicates the possibility of a bullish crossover. In Figure 1, the average directional movement index (ADX)(14) confirms the strong uptrend of the stock. At 25, the +DI (positive directional index) is ready to cross the ADX upward. So the breakout will give a buying opportunity to traders.



FIGURE 1: HPQ, WEEKLY. Hewlett-Packard formed an ascending triangle, showing some price congestion at $42.50 with an overbought RSI(14) above 70.
Graphic provided by: StockCharts.com.
 
I would recommend traders to go long on breakout at $42.50 with a target of $47.50.

The breakout level on the ascending triangle is calculated on the length of the triangle; $42.50 - $37.50 = $5 is the length of triangle. So by adding $5 to $42.50, traders can see the target.


FIGURE 2: HPQ, DAILY. The trend is developing at the 23 level, so the breakout of a previous high pivot will make the trend stronger.
Graphic provided by: StockCharts.com.
 
According to Figure 2, the stock closed above its previous high resistance. This is one of the bullish indicators. Figure 2 also shows the good volume flow in the stock. The RSI (14) moved vertically above 70 as the price traveled above $43, so the weekly target can be followed, confident with the view of violating the previous high resistance in the daily chart. The MACD (12, 26, 9) with a bullish crossover has remained above its trigger line, reflecting a buy signal. The ADX (14) turned upward from its 15 level, indicating the bullish strength in the trend. The trend is developing at the 23 level, so the breakout of a previous high pivot will make the trend stronger.

The ascending triangle breakout creates low-risk buying opportunities, and hence, the breakout of Hewlett-Packard should be bought with the target of $42.50.



Chaitali Mohile

Active trader in the Indian stock markets since 2003 and a full-time writer. Trading is largely based upon technical analysis.

Company: Independent
Address: C1/3 Parth Indraprasth Towers. Vastrapur
Ahmedabad, Guj 380015
E-mail address: chaitalimohile@yahoo.co.in

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