MeadWestvaco Corporation is a global packaging company that provides packaging solutions the healthcare, beauty and personal care, food, beverage, tobacco and home and garden industries. MeadWestvaco’s other business operations serve the consumer and office products, specialty chemicals, forestry and real estate markets. The company operates in five different business segments: Packaging Resources, Consumer Solutions, Consumer & Office Products, Specialty Chemicals, and Community Development and Land Management.
To review MeadWestvaco’ stock, please take a look at the 1-year chart of MWV (MeadWestvaco Corporation) below with my added notations:
MWV has fallen into a sideways, consolidation pattern know as a Rectangle. Rectangle patterns form when a stock gets stuck bouncing between a horizontal support and resistance. A minimum of (2) successful tests of the support and (2) successful tests of the resistance will give you the pattern. The nice thing about a Rectangle pattern is that it will provide you with clearly defined breakout and breakdown points. For MWV, the Rectangle pattern formed a $28 resistance (red) and a $25 support (green). Eventually, MWV will have to break one of those two levels.
Chart patterns can also provide price targets. Simply take the height of the overall pattern and add or subtract that amount to or from the breakout or breakdown point to get the minimum price objective. For example, since the Rectangle pattern for MWV is $3 high ($28 – $25), MWV should climb to a minimum of $31 ($28 + $3) if it breaks above $28 or fall to $22 ($25 – $3) if the stock breaks below the $25 level. Chart pattern price targets are certainly not guarantees, but they are often fulfilled.
The Tale of the Tape: MWV has formed a very common chart pattern know as a Rectangle. This pattern shows clear breakout and breakdown points for a potential long or short position. For MWV, a trader could enter a long position at the $25 support or a short position on a rise to $28. However, a lot of traders like to wait for the break up or down to enter the trade. So, a long trade could be made if MWV were to break above $28 or a short position if the stock breaks below $25.
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