Baxter International (BAX) has had a big run from its September nadir. In a word, it was impressive. I learned 40-some years ago that the higher a market goes, the less bullish you should be on it. The lower it goes, the less bearish you should be.
This life lesson came from the commodity markets, where higher prices could cut consumption and encourage the use of other products or increased supply the next season. Low prices typically resulted in supply cuts or increased consumption, but never Chapter 11, unlike stocks. Keeping that in mind, let's look at the charts of BAX, below.
In this daily chart of BAX, above, we can see a number of interesting clues. I want to point out the heavier volume in April and May that is followed by much lighter turnover. As a technician I don't need to dig down and try to find out why as much as ask the question why it is light now.
Volume should increase in an uptrend as more investors get the message and climb on board. Notice how the On-Balance-Volume (OBV) line is strong until May and then it turns flat. Prices are trending up for sure, over the rising 50-day and 200-day moving averages.
It is not big, but there is a bearish divergence between the higher price highs in July and weaker momentum readings.
In this three-year weekly chart of BAX, above, we can see that prices are way above the rising 40-week moving average line -- maybe too far above that mathematical trend line. The weekly OBV line moved up with the early rally, but has turned flat recently suggesting that buyers are not being all that aggressive at these price levels.
The Moving Average Convergence Divergence (MACD) oscillator is above zero, but the two lines comprising three moving averages has narrowed and could cross to a sell signal. Either way momentum has been slowing in recent weeks.
Strategy: BAX hasn't done anything wrong but we need to be ready just in case. If BAX pulls back to break $46 I would put out the caution flag. A close below $43 could prompt us to sell.