Extended Unilever Could Still Trade Higher

 | Oct 05, 2017 | 3:24 PM EDT
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The last time we looked in on Unilever N.V. (UN) was in early May, and we looked for a correction and suggested nailing down some profits. UN made a relatively shallow correction the month of June and into early July, but prices quickly resumed their advance. Today prices are higher and even more stretched than they were in May. What should we do?

In this daily bar chart of UN, below, we can see a big percentage move from the November low to the high made last month. A bullish golden cross of the 50-day and 200-day moving averages can be seen in March. UN has stayed above the rising 50-day moving average line with only two breaks -- one in July and one test last month. UN is above the rising 200-day moving average line, maybe too far above it. The On-Balance-Volume (OBV) line has moved higher to confirm the advance but is has weakened slightly in the past month. The Moving Average Convergence Divergence (MACD) oscillator has been weakening since March and recently moved below the zero line for an outright sell signal.

In this weekly bar chart of UN, below, we can see a long consolidation pattern covering most of 2015 and 2016 before an upside breakout. The height of this consolidation pattern gave us an upside price target around $56, which was achieved. Prices are above the rising 40-week moving average line but the advance looks extended. The weekly OBV line moves up from November to June and then turns neutral. This is a bearish divergence as prices have kept going up but the OBV line has stalled. The MACD oscillator on this timeframe is in a take profits sell mode.

In this Point and Figure chart of UN, below, we have mixed information. We have a higher price target of $68 but we also have a market that is extended on the upside.

Bottom line: UN has made a couple shallow corrections in its path higher. My "gut feel" is that the next correction, whenever it comes, will not be shallow.

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