Last week I wrote an article in regards to DOX (Amdocs Limited) that had recently broken through a key resistance level that was also a new 52-week high breakout. As I mentioned in that article, when it comes to entering a stock hitting a 52-week high, I prefer to look for ones hitting a “NEW” high. To me, his would be a stock that hasn’t hit a new 52-week high in quite some time. In addition, and more importantly, I want the stock to have broken through a key area of resistance. This way I know that it wasn’t just any move higher. Today I’d like to review a stock that has the resistance, but hasn’t broken out yet: DAN.
To review DAN’s stock, please take a look at the 1-year chart of DAN (Dana Holding Corp) below with my added notations:
As you can see, DAN has been stuck in a sideways move for the last 7 months while running into a clear resistance at $19 (red) the whole time. DAN also tends to find support on sell-offs near the $17 area (green). In the short run though, DAN has managed to find support at $18 (light green) regardless of market conditions. So, does DAN’s insistence on not moving below $18 mean the stock is finally gearing up for a break higher?
DAN possibly breaking above the $19 level would be the 52-week high resistance breakout I like to see. From there, the stock should be heading higher, most likely on a new uptrend. This week’s upcoming earnings release for DAN could be the catalyst for the breakout.
The Tale of the Tape: While stuck in a sideways move this year, DAN has formed a key resistance level of $19, which would be a 52-week high breakout if DAN were to break above it. This should signal higher prices ahead for DAN. Earnings releases are common catalysts for starts of new trends and DAN releases their earnings later this week. A long trade could be entered if DAN breaks out above $19, or on a pullback to $17, with a stop set below the entry point either way.
Before making any trading decision, decide which side of the trade you believe gives you the highest probability of success. Do you prefer the short side of the market, long side, or do you want to be in the market at all? If you haven’t thought about it, review the overall indices themselves. For example, take a look at the S&P 500. Is it trending higher or lower? Has it recently broken through a key resistance or support level? Making these decisions ahead of time will help you decide which side of the trade you believe gives you the best opportunities.
No matter what your strategy or when you decide to enter, always remember to use protective stops and you’ll be around for the next trade. Capital preservation is always key!
Christian Tharp, CMT