A. O. Smith Corp (NYSE: AOS)

A.O. Smith Corporation manufactures and sells water heaters and boilers to the residential and commercial end markets primarily in the United States, Canada, China, Europe, India, and the Middle East. It operates in two segments, North America and Rest of World. The company offers a line of electric, natural gas, liquid propane, solar tank, gas tankless, and electric water heaters for applications in residences, restaurants, hotels and motels, laundries, car washes, and small businesses; and residential and commercial boilers primarily for space heating applications in hospitals, schools, hotels, and other large commercial buildings. It also provides boilers and expansion tanks, commercial solar water heating systems, swimming pool and spa heaters, and related products and parts. The company sells its products through independent wholesale plumbing distributors, hardware and home center chains, and manufacturer representative firms. It sells water heaters to approximately 5,900 retail outlets, as well as water treatment products to 2,900 retail outlets in China.

To review A.O.’s stock, please take a look at the 1-year chart of AOS (A.O. Smith Corporation.) below with my added notations:

1-year chart of AOS (A.O. Smith Corporation.)

AOS has formed a key level of support at $45.00 (blue) over the last (3) months that it has been struggling to hold. In addition, the stock has created a down trending resistance starting from the end of December (green). These two lines combined have AOS stuck trading within a common chart pattern known as a descending triangle, and at some point, the stock has to break support or break its string of lower highs.

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The Tale of the Tape: AOS has formed a descending triangle pattern. A short trade could be made on a break of the $45.00 support level. A break through $47.00 would break the down trending resistance and would set up a potential long trade.

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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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