Tuesday, June 26, 2012

Dow Chemical (DOW) at price channel support

Markets settled modestly higher today, Tuesday June 26th: 

S&P500 +0.5%
NASDAQ +0.6%
DJIA +0.3%

The Dow Chemical Company (DOW) had interesting price action during today’s trading. The S&P100 component closed 2.9 percent lower, slicing through its 200-hour SMA in the process. The last time DOW closed below the 200-hour SMA, which happened on April 30th, it proceeded to decline nearly 15% over the next 2.5 weeks.

Yet trend channel analysis makes a cautiously bullish argument for Dow Chemical, not a bearish one. Today’s intraday low of $31.18 touched price channel support stretching back to May 18th. Scrutinizing the below screenshot of DOW, which shows price action from approximately the beginning of March, the stock’s movements do seem relatively well contained by the two drawn price channels. Rarely does price slice through a channel boundary, and when it does, it usually first bounces away weakly.

DOW, 180 d 1h (zoomed in)
A long position with an entry around $31.18 therefore seems sound, so long as a stop just below is used to limit risk. A concern with that forecast, however, is the steep descent that price action has taken over the last four sessions.

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