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HEAD & SHOULDERS


Delta Breaks Free

10/31/08 10:07:47 AM
by Arthur Hill

After a multimonth consolidation period, Delta Airlines finally broke free of resistance to confirm a bullish continuation pattern.

Security:   DAL
Position:   Accumulate

Figure 1 shows daily candlesticks over the last four months. The stock surged from mid-July to early August and then embarked on a consolidation the last two and a half months. There was a sharp dip in early October, but the stock recovered and moved right back to resistance. After a smaller dip and recovery in late October, it became clear that an inverse head & shoulders pattern was taking shape.

FIGURE 1: DAL, DAILY. Here, you can see that the stock surged from mid-July to early August and then consolidated.
Graphic provided by: TeleChart2007.
 
After an advance (July–August), an inverse head & shoulders is a bullish continuation pattern. The stock is breaking above neckline resistance as I write this, signaling a continuation of the July–August advance. Based on traditional technical analysis, the height of the pattern is added to the breakout for a target. With the height around 5 and the breakout around 10, the upside projection is around 15.

Strong volume confirms the pattern. Expanding upside volume is important for a head & shoulders pattern. Volume was relatively light during the September decline and expanded during the October advance. Upside volume was above average two days ago, and the current volume bar is not finished. This chart was made around 11 am on October 31, which means there is still plenty of time for above-average volume to validate the breakout.

FIGURE 2: DAL, WEEKLY. Delta drifted lower in 2007 and then fell sharply in the first half of 2008.
Graphic provided by: TeleChart2007.
 
Figure 2 shows weekly candlesticks over the last 15 months. The stock drifted lower in 2007 and then fell sharply in the first half of 2008. The red line marks resistance from broken support around 15.5–16. This is just above the head & shoulders target and affirms the upside target for this breakout.



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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E-mail address: arthurh@tdtrader.com

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Date: 11/02/08Rank: 5Comment: 
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