I thought a market rally might have started on Tuesday, but yesterday’s sell-off seems to have placed that prediction on thin ice for the time being. As I’ve stated repeatedly, no matter how bad we continue to sell-off, the market will eventually rally. My recommendation to all of the traders I coach is to narrow their list of stocks down to the ones that are still within an area where entry levels are identifiable. A stock to consider putting on such a list would be RBN (Robbins & Myers, Inc.)
Robbins & Myers, Inc. is a supplier of engineered equipment and systems for critical applications in global energy, industrial, chemical and pharmaceutical markets. Robbins & Myers operates in three segments: Fluid Management, Process Solutions and Romaco. Fluid Management designs, manufactures and markets equipment and systems used in oil and gas exploration, recovery and transportation, specialty chemical, wastewater treatment and a variety of other industrial applications. Process Solutions designs, manufactures and services glass-lined reactors and storage vessels. Romaco designs, manufactures and markets packaging and secondary processing equipment for the pharmaceutical, healthcare, nutraceutical, food and cosmetic industries.
Please take a look at the 1-year chart of RBN (Robbins & Myers, Inc) below with my added notations:
From January until June, RBN had created a very common chart pattern known as a Rectangle. RBN’s Rectangle consisted of (2) important price levels: The first was the $45 resistance (red) and the other would be the $40 level (green). Always remember, important prices can tend to stick with a stock. So, after rallying higher in June and then pulling back over the last month, RBN has fallen back into its previous Rectangle pattern’s range of $40-45. So far, the previous support of $40 has held the stock again over the past couple of days.
When RBN eventually breaks out of this range again, levels of $50 and $35 (blue) could come back into play for trading opportunities.
The Tale of the Tape: RBN has formed (2) clear levels of importance over the last several months at $45 and $40. A long trade could be entered at the $40 support or on a breakout above $45. Stops should be placed below the level that was entered. However, if RBN were to break its $40 support, a short trade could be entered in expectation of a move lower.
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