Aug 27, 2010 10:04 AM PDT
The limited volume behind the recent pullback from CF Industries Holdings, Inc. (CF) doesn't suggest any major problems lie ahead - this is just a garden-variety retreat from a resistance line at $85.00 that was hit four times in the last four months.
Still, a 'mild' selloff is all relative. With CF shares trading at $80, a slide to the next-nearest support line around $69.00 is still a trade-worthy 13% possibility.... or much more, for option traders. Of course, the best-case scenario would be for CF Industries Holdings shares to break under support at $69.00. First things first though.
The primary bearish triggers for the CF Industries Holdings view are the failed bump into the ceiling at $85, while we simultaneously saw a MACD crossunder.
There's not much ambiguity with the Goodyear Tire & Rubber Co. (GT) chart. It's overbought, and appears to be en route to correcting that problem. The consolidation between $17 and $19 crumbled this week, and isn't even an afterthought as of today.
Realistically, GT may not find a landing spot until $10.00 is reached. That's where Goodyear Tire & Rubber shares found support between May and July. Yes, that's quite a distance to cover... about a 40% tumble from current trading levels. Then again, the move from $10 to a peak of $18 was a stretch too, yet it happened.
The one thing to be alert for regarding GT is the potential turbulence around $14.00. That was a ceiling a few months ago, and ended up being a floor/life-preserver in late July. Maybe it's nothing now though.
Goodyear Tire & Rubber Co. shares have a very liquid option market.
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Were it just PolyOne Corporation (POL) struggling today, we may have dismissed it... it's not exactly a mainstream name (not that it's not a great downside opportunity). However, we also noticed that many, many of the 'synthetics' and 'chemical' companies were falling out of favor lately. When the whole industry is in unison like that, there's usually a reason for it, not to mention some longevity to the trend. So...PolyOne Corporation was of particular interest as a bearish candidate not just because of the ridiculous runup from POL shares, but because we've witnessed a major outside-day reversal bar today. The move follows a very short, low volume doji bar from the 24th , which is also often a sign of a peak and reversal (and so far, it has been for PolyOne Corporation shares).
There's no option market for POL, but at $5.00 per share, it's not like option traders would be interested anyway.... not enough movement to offset a high theta.
And finally, Centerpoint Energy Inc. (CNP) is setting up what could be a fairly significant downside move.... something that's not often said about a utility (natural gas) stock. Trading opportunities come in strange packages sometimes though.
While the clues of a looming breakdown for Centerpoint Energy stem from the daily chart, it should be noted that the peak this week for CNP shares happened to occur at what's been a long-term resistance line (thick, purple) that's been in place for years... literally. So, the reversal is hardly a surprise. As for the short-term hint though, it was simply the slide back under the support line (thin, blue) that took shares higher from the early July low.
Part of the challenge for CNP may actually be a good one for consumers.... natural gas prices recently hit seven year lows. Centerpoint Energy saw income drop about 15% last quarter, some of which - though not all - was simply the result of falling commodity prices. Either way, it's a strike against the stock.
Centerpoint Energy shares are optionable, though trading is pretty thin.
If you'd like to know when or if we issue trading alerts specifically for GT, POL, CF, or CNP, then be sure to subscribe to our free e-newsletter. It's delivered two to three times per week.
