Thanks to the market rally on Tuesday and Wednesday, a lot of stocks that I am watching have broken back above key areas of resistance. This should be a sign of higher prices for those stocks, even if those moves are only temporary. One stock of many that has broken back above resistance would be that of Olin Corp.
Olin Corporation is a manufacturer concentrated in two business segments: Chlor Alkali Products and Winchester. Chlor Alkali Products manufactures and sells chlorine and caustic soda, sodium hydrosulfite, hydrochloric acid, hydrogen, bleach products and potassium hydroxide. Currently, the Chlor Alkali Products segment represents 65% of its sales. Winchester products, which represent 35% of 2010 sales, include sporting ammunition, reloading components, small caliber military ammunition and components, and industrial cartridges. Its subsidiary, Olin Canada ULC, operates one chlor alkali facility in Becancour, Quebec, which sells chlor alkali-related products within Canada and to the United States. Its subsidiary, Winchester Australia Limited, loads and packs sporting and industrial ammunition in Australia.
Please take a look at the 1-year chart of OLN (Olin Corp) below with my added notations:
OLN has a very important price level at $18 (green). The stock also seems to have another important level at $20 (red) and has found it’s most recent support level at $16 (blue). So, in addition to showing clear levels of support/resistance, OLN is also showing us that it tends to bounce between each $2 increment.
After breaking the $18 level earlier in the week, OLN fell lower, just as a trader would expect on a break of support. Thanks to the market rally of the past two days though, OLN has broke back above the $18 level. If the market rally cooperates, OLN could make its way back up to the $20 area. However, if OLN cannot hold $18 on a pullback, the stock will probably retest the $16 level again.
The Tale of the Tape: After breaking below its $18 level and falling to $16, OLN broke back above that $18 level yesterday. OLN should be moving higher overall from here, even if only for a while. A long position could be entered at or near $18 with a stop below that level. A break back below $18 would negate the forecast for a move higher and a short position would be advised instead with a stop above $18.
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