Charting price and momentum together often yields good signals worth following and allows you to spot emerging trends before price moves.
The stock fell less than three points Monday, and, as of Friday's close, it had recaptured much of that loss. It is noteworthy that Kellogg's beta is somewhere between 0.52 (Google Finance) and 0.82 (Yahoo Finance), so it makes sense that price reaction to marketwide volatility would be lower than for some other stocks.
What else can we learn from looking at the Kellogg chart?
The first signal worth mentioning was a double reversal signal in candlestick indicators. After a gradual decline over several months, these signals were a bullish abandoned baby and an engulfing pattern. These are highlighted on the chart.
The signals appeared right before the stock's price broke out above resistance. Almost immediately, prices rose to a point where the relative strength index went into overbought territory -- for the first time in recent months. The index retreated back into the middle of its range as price settled in at about $67. Shares closed Friday at $67.03, up 17 cents or 0.2%.
The volatility last Monday and Tuesday actually set what appears to be new support, a flip from resistance. If this level, around $64.75, holds, a new bullish move could begin. Thursday's session formed a spinning top, indicating uncertainty about the next move.
Here's what to look for with Kellogg:
Support holds at $64.75, which would indicate that resistance has transformed into support.
2. RSI remains between index value of 30 and 70.
3. Daily trading range remains at or below one point. (Note: Over the past several months, long days of two points or more showed up only five times.) This consistent and modest price volatility would be reassuring, and a prediction of strength in the trading range.
4. Little or no price reaction to dividend. Friday is Kellogg's ex-dividend date, so some downward pressure might be experienced.
The chart contains numerous signals. Collectively, they provide intelligence about what might happen next.
This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.