Despite a few choppy trading sessions last week, the bulls
remain in the driver's seat as made evident by the stock market's
largely uninterrupted ascent. Although price action continues to
bolster major equity indexes higher, the economic data front is
still mixed; retail sales offered some encouragement last week
after beating expectations, while consumer sentiment and industrial
production data came in worse-than-expected.
Traders wary of the steep rise in equity prices ought to take a
closer look at chemical-manufacturer
), as this basic materials bellwether is sending signals of a
potential trend reversal, in which case shorting this stock could
pay off big once the next profit-taking wave comes around.
Consider DuPont's 10-year weekly performance chart below. They key
takeaway from looking at this big picture is that DD has been
fairly range-bound over the last 10 years; notice how this stock
has faced stiff resistance around the $55 level (blue line) on
several occasions, while also managing to rebound off the $42 level
(red line) fairly consistently after each failed attempt. Also,
notice how since breaking below its support level in late 2008, DD
went on to stage a furious rebound only to re-enter its previous
trading range between roughly $40 and $55 a share.
Click Image to Enlarge
With DD currently trading near the top of its longer-term range, we
advise investors to buy into this recent dip with caution, given
the historical pattern at hand. Likewise, traders looking to take a
short position should utilize a stop-loss, given that the
broad-market is still in a bull trend.
In addition to DD's worrisome technical pattern, the company also
recently cut its outlook
for next quarter's earning after citing unseasonably cool weather,
adding fundamental evidence to the list of bearish signposts. In
terms of upside, this stock has near-term resistance at $54 a share
followed by the $56 level; on the flip side, DD has upcoming
support at around $50 a share. As always, investors of all
experience levels are advised to use stop-loss orders and practice
disciplined profit-taking techniques.
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Editor's note: This article by Stoyan Bojinov was originally