Xylem Inc. is engaged in the design, manufacture, and application of engineered technologies for the water and wastewater applications. The company operates in two segments, Water Infrastructure and Applied Water. The Water Infrastructure segment offers various products, including water and wastewater pumps, treatment and testing equipment, and controls and systems, as well as filtration, disinfection, and biological treatment equipment under the Flygt, WEDECO, Godwin Pumps, WTW, YSI, and Leopold names for transportation, treatment, and testing of water and wastewater for public utilities and industrial applications. The Applied Water segment provides pumps, valves, heat exchangers, controls, and dispensing equipment systems under the Goulds Water Technology, Bell & Gossett, AC Fire, Standard, Lowara, Jabsco, Flojet, and Flowtronex names for residential and commercial building services, industrial water, and irrigation applications.
Take a look at the 1-year chart of Xylem (Nasdaq: XYL) below with added notations:
XYL has essentially been trading sideways for the last 6 months, while forming a common pattern known as a rectangle. A minimum of (2) successful tests of the support and (2) successful tests of the resistance will give you the pattern. XYL’s rectangle pattern has formed a $40 resistance (red) and a $35 support (blue). A break above $40 would also be a new 52-week high.
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The Tale of the Tape: XYL is trading within a rectangle pattern. The possible long positions on the stock would be either on a pullback to $35, or on a breakout above $40. The ideal short opportunity would be on a break below $35.
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
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