Mapping the Market: Colgate-Palmolive shares look ready to extend rally

Colgate-Palmolive

Today 11:00

By Christopher Romano
Oct 22 (Reuters) - Shares in Colgate-Palmolive CL.N have gained more than 13% over the last three weeks or so. That rise could be a sign of building momentum for another leg higher, technical analysis suggests.
Click here for a detailed technical analysis chart.
Technical analysis uses charts of past price moves to map out where a market might go next. Over the years, market watchers have come to recognize that certain chart patterns tend to come before gains.
Colgate's chart has formed one of them, known as a bull pennant, because it resembles the object that flies above baseball stadiums. It is called a continuation pattern because it usually forms between two rally phases in a stock.
The pattern begins with a sharp climb, which forms its vertical part, known as the flagpole. Eventually the shares pause. Analysts call this resting phase consolidation. It happens when some buyers take profits while other investors position themselves for fresh gains.
During consolidation the stock moves little in either direction. Lines connecting its highs and lows converge into a symmetrical triangle that narrows from both sides. The pattern is confirmed when the stock breaks above the triangle's upper line. That is what happened last week, when Colgate shares reached $95.33, highest in about 2-1/2 months, according to LSEG data. 
After a breakout, analysts estimate potential gains by measuring the height of the flagpole. For Colgate, that points to a target of $106 and possibly as high as $109.
On the way up, analysts look for chart levels that could act as support -- which works like a floor for prices -- and resistance, which is a ceiling or cap on gains.
They also use tools that measure volatility and momentum to back up their view. Volatility is how much a stock's price swings. Momentum reflects how strongly a stock is moving in one direction.
One such tool is Bollinger Bands. These are two lines drawn above and below a moving average of the stock's price. A moving average smooths out price swings by averaging prices over a set period. The bands widen when price swings grow larger.
Another is Moving Average Convergence Divergence, or MACD. It compares two moving averages of different lengths to show whether buying pressure is building or fading. A third is the Relative Strength Index, or RSI. It gauges the speed of recent price changes to show whether a stock is gaining or losing strength.
All three tools suggest Colgate is gaining upward momentum. Even so, the shares could slow near resistance around $100 on their way higher.
If the shares start to retreat, a fall below support in the $88 to $90 area would probably end the rally for now.
Colgate-Palmolive did not respond to a request for comment.
What the chart shows:
Colgate has gained more than 13% in three weeks and broke out of a bull pennant pattern, hitting $95.33
Gains could target $106 and possibly $109, with resistance near $100 along the way
A fall below support in the $88 to $90 area would likely end the rally for now
     
(Mapping the Market is a daily column written by Reuters journalists. The commentary is based on a technical analysis of financial charts, which helps assess the likelihood of future price moves but does not guarantee the outcome. The column does not constitute investment advice or trading recommendations. )

(Christopher Romano is a Reuters market analyst. The views expressed are his own; Editing by Burton Frierson and David Gaffen)
((Christopher.Romano@thomsonreuters.com))