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When it comes to the new Dow Inc. (NYSE: DOW ), you'll hear it's complicated. And it is. That is until investors look at DD stock where the long and short of it merge into a downtrend and a playable bearish position. Let me explain.
This past month, DowDupont, one of the world's largest industrial chemical companies, completed some complex financial engineering with a spin-off into three separate publicly traded vehicles. That follows the former company's own existence as the spawn of a tax-saving arrangemen t a few years ago.
Now DowDupont has split into conglomerate-style DuPont (NYSE: DD ), agriculture-focused Corteva (NYSE: CTVA ) and commodities chemical producer Dow Inc. But management's bright idea to deliver increased shareholder value to its investors - and likely enrich themselves - hasn't gone exactly as planned.
For its part DD stock has enjoyed Wall Street's backing. Shares exploded higher this week following an "overweight" initiation by Morgan Stanley. The firm sees value in DuPont regardless of whether it becomes a "true multi-industry" company or keeps its businesses separated.
Meanwhile, shares of CTVA have found less enthusiastic support. Among analysts weighing in, eight of 11 rate Corteva with a hold recommendation and $30 price target. Shares of CTVA were recently trading at $27.50.
Okay, but what about DOW stock? On the price chart, shares continue to formulate a downtrend despite decrees that the sum of all those parts should be worth more. They're also looking ready for traders to short DOW sooner rather than later.
DOW Stock Daily Chart
Since being spun off, DOW stock has worked its way into a downtrend within a simple price channel. Last week's new trading low in shares could ultimately resolve itself as a lower-low or undercut double-bottom pattern relative to Dow's March low. For now, though, DOW remains in control of bears. And currently, shares are in the process of setting up for a lower risk short.
This week's rally has pushed DOW stock into an area of resistance. The zone is backed by Dow's channel line, the 38% retracement level and Dow's less-than-receptive debut when trading in DOW stock first commenced, and making shares likely top-heavy with anxious bulls looking to sell.
For traders agreeable that a bearish trend in motion can stay in motion in DOW stock, I'd recommend waiting on this week's high to be confirmed as a daily pivot within the existing downtrend. From there, placing a stop above the pattern and taking profits as fresh lows develop looks like a winning strategy off and on the price chart with no complex financial engineering required.
Investment accounts under Christopher Tyler's management do not currently own positions in any securities mentioned in this article. The information offered is based upon Christopher Tyler's observations and strictly intended for educational purposes only; the use of which is the responsibility of the individual.. For additional market insights and related musings, follow Chris on Twitter @Options_CAT and StockTwits .
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