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GBX Undergoing Bullish Breakout?

02/12/13 12:41:21 PM
by Chaitali Mohile

Greenbrier has formed a long-term symmetrical triangle. In what direction will the triangle break out?

Security:   GBX
Position:   Buy

On the weekly time frame chart in Figure 1, Greenbrier Co. (GBX) has formed a long-term symmetrical triangle. The two converging trendlines formed by the series of lower highs and higher lows are ready to intercept at one point. This suggests that the triangular pattern is likely to undergo a breakout. This formation can break in any direction. We cannot anticipate the breakout direction unless the pattern actually breaks. If the stock forms the symmetrical triangle during consolidation, the pattern is considered to be a continuation formation. Currently, GBX is likely to breach the upper trendline resistance. The stock has two strong technical supports of the 50-day and 200-day moving average (MA).

FIGURE 1: GBX, WEEKLY
Graphic provided by: StockCharts.com.
 
Although the relative strength index (RSI) (14) is rising above the 50 line, it has to sustain in an overbought area above 60 levels. Earlier, the RSI had plunged from 70 levels, forming a strong resistance. So to influence the upcoming bullish breakout, the RSI (14) has to establish support in an overbought area.

The moving average convergence/divergence (MACD) (12,26,9) is climbing in positive territory. The average directional index (ADX) (14) is weak, but the increasing buying pressure (green line) is highlighting a bullish interest in the rally. Hence, the breakout is likely to occur in the bullish direction.


The long-term symmetrical triangle is a bullish flag & pennant formation for GBX on its monthly time frame chart (Figure 2). The stock initiated a robust bullish rally from as low as $2.50, breaching the 50-day MA resistance. Gradually, GBX reached the previous high resistance zone near 30 and 35 levels. Due to these resistances, the rally moved sideways in a converging trading range. Thus, the flag was formed in a symmetrical shape.

FIGURE 2: GBX, MONTHLY
Graphic provided by: StockCharts.com.
 
The RSI (14) is moving within bullish levels (50 and 70). The MACD (12,26,9) is volatile in positive territory. The ADX (14) is very weak. Thus, the bullish breakout of the flag & pennant is not indicated in Figure 2. GBX would continue to move within the narrowing range. An upward breakout would occur once the indicators turn bullish. A long-term potential target of GBX is 30 - 4 = 26 (length of flag pole) + 21 (breakout point) = 47.

This breakout would be the major bullish event for long-term traders and investors. However, traders should wait for the confirmed bullish indications from all indicators before initiating the long trade.

Thus, the symmetrical triangle of GBX is ready to undergo a bullish breakout in the near future. Here, the target is measured, considering the bullish flag & pennant formation as it gives a perfect directional breakout.




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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