by Serge Berger | April 1, 2014 8:45 am
As the first quarter for 2014 came to an end on Monday, the big picture for U.S. stocks marginally improved. With feelings of spring in the air and the charts showing some better green shoots, we might just see another leg higher in stocks in coming weeks/months. One I’m focusing on is global diversified technology company Honeywell (HON[1]).
A daily routine of mine is to closely follow various equity sectors and subsectors, watching for relative strength and weakness vs. the broader market, as well as among the sectors themselves. Through that lens, the industrial sector — as represented by the Industrial SPDR (XLI[2]) has struck a fairly neutral tone in recent weeks, trading roughly in line with the S&P 500.
Furthermore the XLI continues to hold both its 50-day (yellow) as well as its 100-day (blue) simple moving averages. The sector isn’t a blind buy, but given the posture, it is worth looking at individual stocks for potential buying opportunities.
(Note: Due to technical difficulties, charts are posted via link for today’s Beat the Bell. We apologize for the inconvenience.)
See XLI Chart Here[3]
Within the sector is Honeywell — and while HON stock is no fast-mover, it does present nice opportunities from time to time.
There hasn’t been a ton of news flow around the company as of late, though the Department of Defense did recently award Honeywell with a nice contract that could net somewhere between $40 million and $50 million during the next few years. Beyond that, Honeywell is scheduled to announce its first-quarter earnings in a couple weeks.
Bigger-picture, HON stock still is enjoying are rather carefree rally following its breakout in late 2012 past a massive long-term resistance line. Eventually this move will see some good mean-reversion lower, but until stocks see a better topping phase as the cyclical bull market comes to an end, HON stock likely has some more upside to test.
See Honeywell Weekly Chart Here[4]
Now, onto the daily chart.
Since the late 2012 breakout, HON stock has displayed an incredible loyalty to its 50-day (yellow) and 100-day (blue) SMAs. On the chart, note that each time time when the 50-day failed to hold as support, the 100-day came to the rescue. This happened again just last week, and on Monday, HON stock bounced off the 100-day.
Keeping the ongoing trend from the weekly chart in mind, this thus now offers active investors a chance to try HON stock from the long side with very clearly defined risk.
See Honeywell Daily Chart Here[5]
Very simply, should Honeywell shares stock course again and eventually break below the 100-day SMAs (currently, about a 2.5% selloff), this would be a clear sign to get out; HON stock hasn’t traded below its 100-day moving average since July 2012.
On the upside, however, Honeywell looks to have room up toward the $97 area for the time being.
Clearly defined risk sometimes is more valuable than finding a trade that immediately explodes higher by 10%. It’s Risk Management 101 … and for those that want to be truly successful in this business for the long haul, this is a crucial nuance to learn.
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Download Serge’s trading plan in the Essence of Swing Trading e-book here[7]. As of this writing, he did not hold a position in any of the aforementioned securities.
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