Westlake Chemical Corporation (NYSE: WLK)

Westlake Chemical Corporation manufactures and markets basic chemicals, vinyls, polymers, and fabricated building products. It operates in two segments, Olefins and Vinyls. The Olefins segment provides ethylene, polyethylene, styrene monomer, and various ethylene co-products, such as chemical grade propylene, crude butadiene, pyrolysis gasoline, and hydrogen. The Vinyls segment offers polyvinyl chloride (PVC), vinyl chloride monomer, ethylene dichloride, chlorine, caustic soda, and ethylene. This segment also manufactures and sells products fabricated from PVC, including water, sewer, irrigation, and conduit pipes; window and door profiles; and fences. The company’s products are used in various applications, such as consumer and industrial markets comprising flexible and rigid packaging, automotive products, coatings, and residential and commercial construction, as well as in other durable and non-durable goods. Westlake Chemical Corporation provides its products for chemical processors, plastics fabricators, construction contractors, municipalities, and supply warehouses in the United States, Canada, Singapore, and internationally.

Westlake’s stock is forming a head and shoulders (H&S) pattern. Please take a look at the 1-year chart of WLK (Westlake Chemical Corporation) below with my added notations:

1-year chart of WLK (Westlake Chemical Corporation)

WLK started a nice rally in June from $50 that peaked in October and November at $80. Over the last (3) months though, the stock has created a very important level at $70 (navy), which would also be the “neckline” support for WLK’s H&S pattern. Above the neckline you will notice the H&S pattern itself (red). Confirmation of the H&S would occur if the stock broke below its $70 support. If WLK breaks that level, the stock should move lower from there.

The Tale of the Tape: WLK seems to be forming a head & shoulders pattern. Although a trader could go long at $70 expecting a bounce, the stock’s pattern implies an eventual breakdown. If that happens, a short trade should be entered on a break of the $70 level.

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!

Good luck!

Christian Tharp, CMT