Mohawk Industries, Inc. designs, manufactures, sources, distributes, and markets flooring products for remodeling and new constructions of residential and commercial spaces worldwide. It operates through three segments: Global Ceramic, Flooring North America (Flooring NA), and Flooring Rest of the World (Flooring ROW). The company sells its products through independent distributors, home center retailers, independent and individual floor covering retailers, ceramic specialists, commercial contractors, commercial end users, mass merchandisers, department stores, shop at home, buying groups, retailers, and wholesalers, as well as private labeling programs.
Take a look at the 1-year chart of Mohawk (NYSE: MHK) below with added notations:
MHK had been trending lower since its August peak. In February, the stock began to rally. That rally has taken a break since the middle of April as MHK started trading in a sideways range. While in that sideways move, the stock has formed 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.
The MHK rectangle pattern has formed a resistance at $200 (red), and a $190 support (green). At some point the stock will have to break one of the two levels.
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The Tale of the Tape: MHK is trading within a rectangle pattern. The possible long positions on the stock would be either on a pullback to $190 or on a breakout above $200. The ideal short opportunity would be on a break below $190.
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
Follow me on Twitter: @cmtstockcoach