Most of the price levels highlighted in Today’s Big Stock are of the horizontal variety. They’re easy to identify and easy to trade off of. However, from time to time I also like to discuss important levels that are somewhat of a “moving target” in the form of up or down trendlines. One such stock forming an up trendline is that of Mohawk Industries, Inc.
Mohawk Industries, Inc. is a producer of floor covering products for residential and commercial applications in the United States and residential applications in Europe. The company is a carpet and rug manufacturer, and manufactures, markets and distributes of ceramic tile, natural stone and hardwood flooring in the United States, as well as a producer of laminate flooring in the United States and Europe. It operates in three segments: the Mohawk segment, the Dal-Tile segment and the Unilin segment. The Mohawk segment designs, manufactures, sources, distributes and markets its floor covering product lines. The Dal-Tile segment designs, manufactures, sources, distributes and markets a line of ceramic tile, porcelain tile, natural stone and other products used in the residential and commercial markets. The Unilin segment designs, manufactures, sources, licenses, distribute and markets laminate and hardwood flooring used in the residential market in Europe and the United States.
To review Mohawk’s stock, please take a look at the 1-year chart of MHK (Mohawk Industries, Inc.) below with my added notations:
First, please notice the Rising Wedge I have outlined on the chart of MHK. A Rising Wedge price pattern is essentially a type of triangle formation in which the stock, MHK, has formed an up trending resistance line (navy) and an up-trending support level (blue) after a steep sell-off. These two trend lines converging on one another combine to form the Rising Wedge on MHK. In addition, the stock is approaching its previous 52-week high of $68 from back in May.
The Tale of the Tape: MHK has created a nice trend line of support over the last (5) months and has made its way back up to its previous 52 week high of $68. At some point either the support level or 52-week high resistance will have to break. A long position could be entered on a pullback to the trend line support or on a break to a new high. A short position could be entered if MHK were to confirm the Rising Wedge pattern by breaking the trend line of support.
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