Like many securities, PPG Industries (PPG) corrected to the downside this summer. That move is behind us, and we want to consider what can be ahead of us.
In this chart, above, we can see that starting late last year PPG traded sideways in a relatively narrow, $110 to $120, trading range. The On-Balance-Volume (OBV) line moved slightly lower in this period, suggesting quiet distribution -- meaning selling -- for the next seven months or so.
Prices broke to the downside sharply beginning in July through the end of September. PPG has finally bounced hard to the upside, breaking the pattern of lower lows and lower highs by breaking above its September peak.
To establish an uptrend, PPG must now make a higher low and a higher high, meaning it must pullback first and then rally. The OBV line has started to move up, and we can see a bullish divergence between the prices making lower lows and the momentum study making a higher low. This is one of the setups we like to see before a rally.
In this chart, above, we can see the strong and steady rally PPG made from its 2011 price low. It's impressive. We can also see the dip in the latter half of 2014 before the rally to the 2014 to 2015 highs.
Using your imagination a little bit, this could be two-thirds of a head-and-shoulders top formation. The name head-and-shoulders seems to date back to around the 1900 to 1910 period. Whenever academics and others want to take a shot at technical analysis, they often cite this chart pattern.
The pattern lacks a right shoulder. We have a left shoulder around $105 and then a dip to a low around $90. The head is made with the rally shy of $120 followed by the recent decline to the September low, just below $90.
A downward sloping neckline can be drawn connecting these two lows. The right shoulder could be underway now. A rally failure to the $110 area would probably do the trick. Because technical analysis is not 100% perfect, this major top pattern would be thrown out the window if PPG rallied through the $110 to $120 top area.
Nothing better than watching chart patterns play out in real-time.