After dropping drastically over the past several weeks, the market has finally started to recover a bit over the last few days. For now, all looks better. However, as the market continues to move higher, I believe the rally could end up being short lived. If you missed out on entering short opportunities when the initial sell-off started, you may want to look to rallies for a 2nd chance to get short on a few stocks. One stock worth watching on a move higher would be PX (Praxair Inc).
Praxair, Inc. (Praxair) is an industrial gas supplier. Praxair’s primary products for its industrial gases business are atmospheric gases (oxygen, nitrogen, argon, rare gases) and process gases (carbon dioxide, helium, hydrogen, electronic gases, specialty gases, acetylene). It also designs, engineers, and builds equipment that produces industrial gases for internal use and external sale. Praxair serves approximately 25 industries, such as healthcare and petroleum refining; computer-chip manufacturing and beverage carbonation; fiber-optics and steel making; and aerospace, chemicals and water treatment.
Please take a look at the 1-year chart of PX (Praxair Inc) below with my added notations:
PX has formed several important price levels over the course of the year. The key level to watch at this time is $100. After breaking below that $100 level earlier this month, the stock moved lower as expected. Not surprisingly, PX found support at another key level, that being $90. As the market has moved higher, PX has rallied back up to the $100 level. As PX makes it way back to the $100 level, a trader could expect the stock to resist that level and most likely move lower again.
If PX does in fact move lower again, the levels of $95 and $90 would come back into play. For example, if a trader believes any pullback is just temporary, $95 would be an expected support level.
The Tale of the Tape: After breaking its key level of $100 earlier this month, PX moved considerably lower as expected. Now that PX has started to recover, the $100 level should act as resistance if the stock gets there. From there, PX should move lower again, thus a trader would want to enter a short position with a stop above $100. A break back above $100 would negate the forecast for a move lower and 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