A lot of the stocks I’ve seen and written articles about lately have been hanging out in similar consolidation areas. As you may have noticed, there have been several Rectangle and Triangle patterns in my newsletters as of late. However, not all stocks are stuck at the bottom. Some have actually been trying to climb out of the cellar. One stock that seems to have been trying to do that is the stock of Sonoco Products.
Sonoco Products Company is a manufacturer of industrial and consumer packaging products and a provider of packaging services. The company operates in four segments: Consumer Packaging, Tubes and Cores/Paper, Packaging Services, and All Other Sonoco. In 2010, Sunoco acquired Associated Packaging Technologies, Inc., a supplier of thermoformed containers to the frozen food industry, and Madem Reels USA, Inc., a manufacturer of nailed wood and plywood reels for the wire and cable industry, a small tube and core business in Canada and a small tube and core business in Greece.
Before discussing the potential trading opportunities with SON (Sunoco Products Company), please review the 1 yr. chart of SON that I have outlined below, with my added notations:
After bottoming out around the $28 support level (short-term Double Bottom), SON has moved out of that range over the last 3-4 weeks. Along the way, $30 has been both a support and resistance. Now, the stock has approached the same $32 level that had been support prior to the August breakdown. These (3) levels also seem to imply that SON is currently moving in steps of $2 ($28, 30, 32).
The Tale of the Tape: SON has moved out of its lower range and has now approached a key level of $32. As the stock has bottomed and moved higher, the level $30 has also become important. A long position could be entered on a pullback to the $30 level or on a breakout above $32. However, a bearish trader could short the stock at $32 while then adding to their position on a break below $30.
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