Eventually, We Should See the KeyCorp Rally Resume

 | Mar 17, 2017 | 8:09 AM EDT
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Deposit slip or withdrawal slip?

KeyCorp (KEY) rallied sharply since the election and has been consolidating those gains for nearly four months. Our favorite collection of technical indicators suggests that this sideways price action could continue a bit longer before a new up-leg gets underway.

In this daily chart of KEY, above, we can see a six to seven month consolidation phase starting in April before KEY made its dramatic upside run from $12 to short of $19 in about three months. In the past two months or so, the slope of the 50-day moving average line has begun to flatten, while the 200-day moving average line is still very strong.

The daily On-Balance-Volume (OBV) line moved up from April to December but has turned neutral to slightly weaker this month. In the lower panel is the 12-day momentum study, which shows a bearish divergence between the higher price highs and the lower momentum readings from November to February. A bearish divergence like this is not an immediate sell signal. This divergence is a "heads up" that the rally has slowed and we need to watch this stock even closer, as it could fail.

In this three-year weekly chart of KEY, above, we can see that prices are above the rising 40-week moving average line. Volume has slowed from its best levels in recent months.

The weekly OBV line is neutral after a strong move up from July. The trend-following Moving Average Convergence Divergence (MACD) oscillator crossed to the downside in bullish territory. A sell signal above the zero line should be considered a "take profits on longs" signal, and not an outright sell.

In this Point and Figure chart, above, we can see the price reversals on KEY going back to 2008. This is a huge base pattern that was in place long before the election breakout; $37 is the potential upside price objective from this pattern.

Bottom line: while the price action and upside momentum on KEY has slowed, it is not a top formation, in my opinion. KEY may tread water for another month or two, but we should eventually see a resumption of the bull, with a potential upside target of $37. Weakness below $17 would prompt a reappraisal.

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