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HEAD & SHOULDERS


Alexander & Baldwin Loses Momentum

10/02/08 08:37:34 AM
by Arthur Hill

Alexander & Baldwin has a large head & shoulders pattern working, and a recent loss of momentum points to a neckline support break.

Security:   AXB
Position:   Sell

Figure 1 shows the head & shoulders pattern extending from January to October. The left shoulder formed in February, the head in April to May, and the right shoulder in August–September. Neckline support resides around 41–42, and a break below this level would confirm the pattern. Once confirmed, the downside target would be to around 29. The height of the pattern (53 - 41 = 12) is subtracted from the neckline break for a target (41 - 12 = 29).

FIGURE 1: AXB, DAILY. The head & shoulders pattern can be seen extending from January to October.
Graphic provided by: TeleChart2007.
 
It is also important to note that stock declined from the upper 50s to the low 40s in 2007, which was before the head & shoulders formed. This decline makes it a continuation pattern within a larger downtrend. A neckline break would signal a continuation of the prior decline and extend the downtrend.

Figure 2 focuses on the right shoulder and a rising flag break. The stock declined from June to August and then bounced with a rising flag or channel. With a sharp decline in mid-September, AXB broke flag support and showed weakness. The stock managed to consolidate the last four days but needs to move above 45.5 to undo the flag break.

FIGURE 2: AXB, DAILY. Here, the stock declined from June to August and then bounced.
Graphic provided by: TeleChart2007.
 
The bottom indicator window shows the moving average convergence/divergence (MACD) with a negative divergence. While the stock formed a higher high in mid-September, the MACD failed to confirm and formed a lower high. The MACD followed the negative divergence with a move below the signal line and into negative territory. Momentum has turned bearish, and this points to a support break.



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.

Title: Editor
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