Last week Terex Corp released their quarterly earnings report. Although Terex Corp.’s (TEX) second-quarter loss narrowed significantly, and it swung to a profit on a continuing-operations basis on strong sales, the stock sold off significantly. So far, the stock has declined about 37% from it’s high earlier this year and appears to be taking another leg down from here.
Terex, which makes specialized equipment such as tower cranes and rock crushers, lowered its full-year earnings outlook, although it did raise its revenue projection slightly higher. The company has been posting frequent quarterly losses, as raw materials costs and lingering weakness in construction and industrial markets weighed on the bottom line. In all likelihood, it is the lowering of the earnings guidance that caused the stock to sell-off on its earnings release.
Please review the 1 yr. chart of TEX (Terex Corp) below with my added notations:
TEX has created an important price level at $25 (red) over the last year. After the release of TEX’s earnings report last week, TEX broke the $25 level of support on very high volume and the stock should be moving lower from here. Commonly, stocks will reverse back to retest the levels they break. So, TEX’s $25 level should act as resistance on any move higher.
The Tale of the Tape: TEX (Terex Corp) released their earnings report last week and the stock reacted negatively to the news. After breaking the $25 level, TEX should be moving lower. Although a short position could be entered here, a lower risk short entry could be made on a rally back up to $25 if that were to occur. A stop above the $25 level would be advised either way. If TEX were to break back above $25, the stock might make a run back to the $30 level (pink), thus a long position could be entered instead.
Before making any trading decision, decide which side of the trade you believe gives you the highest probability of success. Do you prefer the short side of the market, long side, or do you want to be in the market at all? If you haven’t thought about it, review the overall indices themselves. For example, take a look at the S&P 500. Is it trending higher or lower? Has it recently broken through a key resistance or support level? Making these decisions ahead of time will help you decide which side of the trade you believe gives you the best opportunities.
No matter what your strategy or when you decide to enter, always remember to use protective stops and you’ll be around for the next trade. Capital preservation is always key!
Christian Tharp, CMT