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 [for more commodity futures news and analysis subscribe to our free newsletter].
Traders wary of the steep rise in equity prices ought to take a closer look at chemical-manufacturer DuPont (DD), 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.
Chart Analysis
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 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 [see also How To Lose Money Investing In Commodities].
Outlook
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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Disclosure: No positions at time of writing
