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Two years ago, Dupont and Dow Chemical merged to form Dow Dupont. Managements meant the union to be temporary so the recent split was not a surprise. But the transition did not go as smoothly for the new three stock entities. Today's writeup is to evaluate the Dow Inc (NYSE: DOW ) prospects.
DOW stock corrected sharply in May, but that month was also rough for all equities - it's not a sign of sustainable trouble ahead. So I don't take this drop as an omen for the company's future. The geopolitical and economic unrest, especially between the U.S. and China, put a few wrenches in everyone's plans.
In its short new public independent life, DOW stock could be an opportunity. In theory, I would consider this as a speculative trade but with a twist.
Looking Deeper Into DOW Stock
DOW is still a mature set of businesses, just with a different umbrella. The future is not as unproven as, say, Beyond Meat (NYSE: BYND ) or Tilray (NASDAQ: TLRY ). Betting on DOW does not carry the same uncertainties as with other typical new stocks.
Consensus is that the three spin-offs from Dow-DuPont will each be better on its own. Ultimately this was an elaborate bit of financial engineering.
Now, Dow Inc. makes for a good bet for those investors who are looking for a fresh stock to invest in. The recent dip was a good opportunity to start but it still not too late. It doesn't carry the usual intrinsic risks that come with IPOs.
For the long term, there is no reason to wait for the perfect entry point. In the long run Dow Inc stock will be a winner along with the stock market. There will always be demand for its chemical products and services.
For those who prefer to trade shorter term, there are important levels to watch for the next few weeks.
$50 per share was important for the bulls to overtake. This was a pivot point that now serves as support for the more bullish action. Next, it is important for the DOW bulls to overcome the next challenge zone. The area around $52 per share has been pivotal since inception. Onus is on the bulls to retake it so they can use it as another base for the next leg higher.
Specifically, above $51.70 DOW stock can target $54, which is another pivot point. The technical price pattern is unfolding in a predictable manner so it will be easy to track short term success. With the help of proper stops, active traders should do well with it.
Conversely, there is an open gap below at $48 per share. Not every gap on stock charts closes, but nevertheless this is a concern - especially if the negative geopolitical rhetoric deteriorates. If the corrective efforts restart, I expect supports at $49.50 per share.
The bulls are breaking through descending trend line of lower highs. To that there is another opportunity to break another one around $53 per share. This is a moving target that changes with the price action but it's a lower high trend that will break and fuel more upside potential.
Fundamentally DOW stock sells at 10 price to earnings ratio. This is cheap in relative and absolute terms. So owning Dow Inc. shares here is not likely to be a financial catastrophe, especially in the long run.
Furthermore, the macroeconomic conditions still favor the bullish thesis for all stocks. As soon as this geopolitical unrest abates, the equities will set new all-time highs and DOW will benefit from it.
Nicolas Chahine is the managing director of SellSpreads.com . As of this writing, he did not hold a position in any of the aforementioned securities. Join his live chat room free here .
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