AZO - Falling Wedge Breakout And Retest

Like so many stocks that have enjoyed huge gains off their November, 2008 and/or March, 2009 lows, AZO rallied 100% from its November 21 low of 84.66 to its April 30 high of 169.99. Since then, it has traded in a Falling Wedge pattern which we'll get to in a minute.

This is a quadruple threaded chart of the fastest Fibonacci sequential measures of relative strength, the 8, 13, 21 and 34. What we're looking for here is for the faster measures to thrust higher, above the next measure of relative strength down in the sequence, e.g., the 8 above the 13, then we want to see it hold when it pulls back to Bullish Synchronicity, which means that the readings are very close. When that occurs, that session's candle becomes a "pivot candle." If the high of that candle is taken out to the upside, that's a Buy Signal from that particular indicator.

The more RSIs that give a signal, the better, but buy and sell signals always must be viewed in the context of what the chart itself is doing. We never allow indicators to dictate Buy and Sell signals to us.

In this particular case, we can see that on Tuesday, the 8,13, and 21 RSI's all came into Bullish Synchronicity with their "shadows," which is the next number down in the sequence, then they bounced higher. The 89 RSI did the same thing with its "shadow," the 144 RSI (not shown).

Now, let's look at what the chart itself is doing to determine whether or not the Buy Signal actually was given (which would be a print above Tuesday's high), and see what we would do about it, if anything.

From the price chart, we can see that:

1. AZO broke out of the Falling Wedge on July 9, at 155.06.

2. The next session, AZO closed back below the breakout, but that candle is circled in green because it was a "pivot candle." The 13/21 RSIs went into Bullish Synchronicity, so the 156.54 high of that candle was a Buy Pivot, meaning that a print of 156.55 was a Buy Signal from that particular indicator.

3. The next session, AZO closed back above the breakout.

4. The following session, July 14, in addition to the pattern breakout, the 13/21RSI Buy Signal was issued on a print of 156.55, but on the rally that day, the 34 and 55RSIs went into Bearish Synchronicity, so that candle is circled in red.

That kind of "push and pull" from the various RSIs is common. They're trying to "get into synchronicity" with each other, for lack of a better way of expressing that.

4. Off that Bearish Synchronicity on July 14, AZO sold off, but look where it landed! Just about smack on the top of the Falling Wedge, on July 21, where it bounced very hard to the upside, and on that session, the 8, 13, 21 and 89 RSIs all went into Bullish Synchronicity! Hmmmm-mm...

5. The high of the July 21 "Pivot Candle" was 156.52, so that's the "Buy Pivot." A print of 156.53 is a Buy Signal from those FOUR measures of Relative Strength, and the stock just came off a successful retest of the Falling Wedge Breakout. Hmmm-mm...

6. 156.53 got printed in yesterday's session, and the stock CLOSED above that, at 156.97. Hmmm-mm...

Summary: In my view, as you know, asking "What do you predict that this stock will do?" and/or "Do you think that AZO will rally to the top of the Falling Wedge?" are the wrong questions to be asking because the answer always is going to be, "I don't have a clue, I'm not a psychic." LOL.

The questions that we want to ask are:

1. Do we want to take these RSI buy signals? Why?
2. Is there a pattern?
3. Did the pattern break out?
4. Has the breakout been retested? If so, was the retest successful?
5. If we want to buy it, at what price?
6. Where is our stop?
7. What would our upside target(s) be?

Not everyone would have the same answers to those questions, but in my view, those are the kinds of questions that we need to answer so that we know what we're doing in a trade.