Delta Forms A Bullish Pennant

08/06/08 08:56:15 AM

by Arthur Hill

Delta Airlines surged in mid-July with a sharp advance on high volume. A pennant formed to signal a rest along the way, and traders should watch for a continuation breakout.

Security: DAL
Position: Accumulate

Figure 1 shows Delta Airlines (DAL) with a big surge on high volume in mid-July. The move carried DAL from around 4.5 to 8.5 in two weeks and pretty much doubled the company's market capitalization. How's that for a change in valuation?! Such surges create overbought situations that need to be worked off with a consolidation or a pullback. Delta chose the former with a pennant consolidation.

FIGURE 1: DAL, DAILY. Delta Airlines had a big surge on high volume in mid-July.

Graphic provided by: TeleChart2007.

Pennants are bullish continuation patterns that signal a rest in the ongoing uptrend. Note how the stock held most of its gains as it consolidated above 6.5. This shows the bulls keeping up the pressure. With a surge early on August 5, DAL is making a breakout attempt to signal a continuation higher. Pennants fly at half-mast, and a successful breakout would target further strength to around 10.5.

Figure 2 shows a longer-term perspective for Delta. First, note how on-balance volume (OBV) surged all the way to its February high. Also note that OBV broke above its late July high with a surge over the last few days. OBV is leading the stock and pointing to higher prices ahead.

FIGURE 2: DAL, DAILY. Note how on-balance volume surged all the way to its February high.

Graphic provided by: TeleChart2007.

In addition to the pennant measurement, there is also a target zone based on key retracements and the falling 200-day moving average. A 50%–62% retracement of the February–July decline would extend to around 11.5–13. This is higher than the 200-day average (10.5) and the pennant measurement (also 10.5). As a low-priced stock with a relatively small market capitalization ($2.56 billion), there could well be an overshoot of the pennant target.

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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Delta Forms A Bullish Pennant

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