Analyzing shares of CVS with Bollinger Bands
A value proposition in a defensive name
- Effectiveness of Bollinger Bands to signal downside
- Their use in testing intermediate term lows
- Tendency to return back to the average
Because of recent news CVS gapped down, and since then it has been trying to rally back. What we developed on this chart was a medium-term basing pattern and near the lower bands I placed blue arrows to note specific points.
The Timeline since March - trading range between $60.14 and $72
The first arrow near the yearly low at $60.14/ share was a point of maximum pain for the longs in the stock. It has since returned back to the center and rallied above the upper band until April 24th
The second (arrow) attempt at closing below the bollinger band after 4/30 was met with a wave of buyers coming in to drive it to highs at and above $65.
The third arrow was not a touch of the lower band but it came in close proximity, being that it tested the lower end of the range at $62.75 it gave the buyers more enthusiasm and brought the price back up to $72+ which has proven hard to hold. The higher band only acted as a resist point in the area around the 21st and 22nd of June at $72.30 which confirmed a bullish top and more evidence that the upper band would prove to be a barrier and not a confirmation point of runaway strength. (several closes above the upper bollinger band typically mean that the security has more room to continue flying until it stalls)
The fourth and most recent arrow with the accompanying volume spike on 6/28 shows that the shorts are being shaken out and that it might start climbing above 65-66 and break out to make the push to 70 again. It would be more of an advantage for the bulls to begin consolidating recent gains, and with the gap 6/27 so wide it might just fill with a week or so, but that is just our opinion of what the technicals are saying.
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