Stocks With Multiple Tops: Breaking Higher or Lower?

By Cory Mitchell | July 04, 2013 AAA

These four stocks have bumped up against a strong resistance level multiple times, but haven't broken out. Like a wound up spring, eventually these stocks will break higher, piercing through multiple tops, or possibly witness a sharp sell-off. While the terms "multiple top" or "double top" signify a peak, this isn't necessarily the case. When a multiple top occurs, both bulls and bears should be watching closely. If the multiple high is pierced the uptrend is likely to continue aggressively. Although, if buyers can't break the multiple top and the stock starts to slide, many of those buyers will quickly turn to sellers.

Analog Devices (Nasdaq:ADI) made a high of $47.27 on February 20, and while the stock has repeatedly tested the $47 region, it hasn't been able to break that high (unadjusted). If the stock can close above $47.27, I expect the the the stock will continue to run up toward $53 or a bit higher. On the other hand, if it drops below $43.80 a test of April low at $41.81 is likely in order. Pierce through $41.81 and a downtrend is in place, likely taking the stock into the $40.50 to $38 range.



Cummins (NYSE:CMI) encountered strong resistance at $122.54 in February and then at $122.32 in May. There have also been two other rallies which fell a couple dollars short of these highs. A rally above $122.54 provides a target of $141. If that situation develops, watch the 2012 high at $129.51. That was also a high tested on two consecutive days, so if there isn't much momentum heading into that price range some selling could develop. On the downside the main price to watch is the $103.41 May low. A drop through there and selling will likely continue all the way down to $87 where I expect support to develop based on former swing lows and the long-term uptrend.



Discover Communications (Nasdaq:DISCA) hasn't been able to break above $81.43, the April high. Earlier in the year the stock had been channeling between that high and $75.67--a low which was also tested on multiple occasions. In May though the low was broken, indicating a potential downtrend was beginning. Strong buying in June though has brought the stock back into the former range, so an upside breakout still could occur. A rally above $81.43 provides a target of $89. A drop below the June low at $72.77 on the other hand will likely take the stock down to $71 and if selling continues, then $64.



Eastman Chemical (NYSE:EMN) peaked in February at $75.18. It has moved to within about a dollar of that high on four different occasions, but can't break through. If it does, the upside target is $86. Short-term support is at $68, and a fall below there indicates a likely test of the May low at $63.48. If selling continues I'd expect the stock to decline into a support zone between $60 and $55.50.



The Bottom Line
These stocks have been bumping up against strong resistance over the last couple months, but that doesn't mean bulls should be abandoning them or that bears should try to get short immediately. Instead, a breakout will eventually occur and the stronger side will be determined decisively. Given the multiple tests of the highs in each of these stocks, I expect a breakout in either direction to be relatively sharp, as traders on the wrong side are forced to come to terms with the breakout direction. I don't know when the breakouts will occur, but these four stocks are worth keeping an eye on, as a breakout likely means a 10%+ move.

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