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CHART ANALYSIS


Iris International Is On The Edge Of A Breakout

06/27/07 12:30:49 PM
by Chaitali Mohile

Iris international is on the support/resistance zone of the retracement level, so the strong bullish indicators could pull the stock above that area.

Security:   IRIS
Position:   N/A

Iris International is undergoing a steady pullback rally for the 2005–06 correction. The stock lost around 20 points from its highs of $28. The bullish rally began in August 2006 on moderate volume; the 50-period moving average (MA) also accompanied the rally and now is almost ready to coincide with the 200-day MA. Two moving averages together will be a strong support to the stock's upside journey. The stock moved ahead of the 200-day MA, forming higher lows, and is now pushing against the 38.2% retracement support/resistance.

FIGURE 1: IRIS, WEEKLY. Iris International is ready to break out of the support/resistance zone.
Graphic provided by: StockCharts.com.
 
The stochastic (14, 3, 3) created good trading opportunities with its upward move from the oversold level of 20. At a highly overbought level above 80, the indicator declined marginally to open more space for an upside move. This indicator can stay at an overbought/oversold position for a longer time frame. The moving average convergence/divergence (MACD)(12, 26, 9) formed a double-bottom formation before resuming the bullish crossover and remained positive. The average directional index (ADX)(14) above 20 would indicate a developing uptrend, also increasing buyer pressure (Figure 1).

With this view on indicators and price charts, the breakout of a 38.2% retracement level looks very possible, so traders can look for a long position above $16, and the next level should be seen as a target for this pullback rally.

FIGURE 2: IRIS, DAILY. The flag & pennant breakout made Iris International reach its old highs.
Graphic provided by: StockCharts.com.
 
In Figure 2, Iris regained its bullish strength as the 50-day MA resistance turned to support. The flag & pennant was formed after the small advance rally of $1.50. The stock almost broke out of the formation, but volume is not particularly enthusiastic. The stochastic (14, 3, 3) tipped up with the 80 level support. The MACD (12, 26, 9) was positive after the bullish crossover and the ADX (14) at 27 indicated a developing uptrend. This strength will be reflected in the weekly chart as well.

Thus, breakouts on both charts signal a long trade, and the stock is likely to reach its previous high.



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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