Reynolds American (RAI) has had a nice rally, doubling in just the past two years. The uptrend looks fine on the surface, but a sideways correction could be in Reynolds' future. Reynolds is part of Real Money's Vice Squad Watch List of 12 "sinful" stocks for investors to consider.
In this chart, above, we can see a steadily rising On-Balance-Volume (OBV) line for most of the past year, but lately it has been diverging as prices keep rising with the OBV making new highs. Prices are currently touching the rising 50-day moving average line. RAI is still well above the rising 200-day line.
In this longer-term chart of RAI, above, we can see the "double" from the $25 low. The OBV line is flat recently even while the prices are still rising. This is a divergence and tells us that buying is no longer aggressive, but rather neutral. Higher prices should be confirmed with increasing or stronger volume and not just average or flattish volume. In the lower panel, we can see another bearish divergence from the Moving Average Convergence Divergence (MACD) oscillator which has been making a lower high and cross over while prices have been making higher highs.
Bottom line -- the price action and indicators do not suggest a rush to the exits, but only a sideways trading range. A sideways trading range does not mean a top and can actually be a preparatory period before a renewed uptrend. Stay tuned.