The Dow Chemical Company (NYSE: DOW)

The Dow Chemical Company manufactures and supplies chemical products for use as raw materials worldwide. The company operates in several segments: The Electronic and Functional Materials segment, the Coatings and Infrastructure Solutions segment, the Agricultural Sciences segment, the Performance Materials segment, the Performance Plastics segment and the Feedstocks and Energy segment. The company has a strategic alliance with Sol Systems LLC to provide turnkey solar renewable energy credit solutions. The Dow Chemical Company was founded in 1897 and is based in Midland, Michigan.

DOW seems to have formed a head and shoulders (H&S) pattern. Please take a look at the 1-year chart of DOW (Dow Chemical Company) below with my added notations:

1-year chart of DOW (Dow Chemical Company)

After rallying much higher this past year, DOW has now created a key level of support at $38 (red). That $38 level is also the “neckline” support for DOW’s H&S reversal pattern. Above the neckline you will notice the H&S pattern itself (blue).

Remember, patterns such as an H&S need to confirm to have the meaning that they imply. Confirmation of the H&S would occur if the stock were to break below its $38 support. If DOW does break that level, the stock should move lower from there.

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The Tale of the Tape: DOW appears to have formed a head & shoulders pattern. Although a trader could go long at $38 expecting a bounce, the stock’s pattern would seem to imply an eventual breakdown. If that happens, a short trade should be entered on a break of that $38 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

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