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Choice Point Stalls After Gap

02/06/08 08:50:20 AM
by Arthur Hill

Choice Point Software bounced off long-term support with a gap. Look for a flag breakout to signal a continuation higher.

Security:   CPS
Position:   Hold

Figure 1 shows monthly prices going back to 2000. Choice Point (CPS) advanced above 40 in 2002 and then began a long consolidation. The stock forged resistance just below 50 and support around 30. It was basically confined to a 20-point range for six years. With a decline over the last eight months, CPS is once again testing long-term support around 30, and it may be time to look for a bounce.

FIGURE 1: CPS, MONTHLY. Choice Point advanced above 40 in 2002 and then began a long consolidation.
Graphic provided by: TeleChart2007.
Figure 2 moves to daily price action and shows a gap off support two weeks ago. This gap is holding and the stock consolidated after the gap. The gap is quite positive, but it is just one day of strength and some follow-through is needed. After the gap, CPS formed a flat flag with resistance at 34 and support at 32.5. These are the levels to watch. A break above flag resistance would signal a continuation higher, while a break below flag support would signal a failure.

FIGURE 2: CPS, DAILY. Here's a gap off support. The gap is holding and the stock consolidated after the gap.
Graphic provided by: TeleChart2007.
Volume and on-balance volume (OBV) show strong buying pressure the last two weeks. The black bars show volume on up days and the red bars show volume on down days. Just before the gap, the stock advanced on big volume. The gap also occurred on big volume. There were also a few advancing days with big volume as the flag formed. OBV surged above its November high last week and this shows strong buying pressure. Volume points to a breakout, but we need price confirmation with a break above flag resistance. Traders get paid for price movements, not volume movements.

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: 02/06/08Rank: 2Comment: 

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