Illinois Tool Works Could Break Sharply to the Upside (ITW)

Advertisement

Industrial company Illinois Tool Works (ITW) designs and manufactures a wide variety of specialty products and equipment. And since a sharp bounce off early August lows, ITW stock has been constructing a consolidation in a bullish manner that could soon resolve in another up-leg for shares.

beat the bell stock investing adviceWhile technology stocks and higher-beta names in general were taken to the woodshed Monday, the Dow Jones Industrial Average managed to eke out a gain on the day. This led me to look at industrial stocks in general for any relative strength plays. While the industrial sector of the S&P 500 increasingly is a mixed bag of weak, neutral and strong stocks, some of the strongest charts I came across are of what some might label “boring” stocks.

Enter ITW.

On the news front, Illinois Tool Works increased its quarterly dividend on Aug. 8; before that, on July 29, ITW reported mixed second-quarter earnings but marginally upped its guidance for the third quarter. ITW stock fell a little more than 3% over the ensuing four trading days, but as early August came around, it turned sharply higher along with the broader market.

In other words, Illinois Tool Works’ post-earnings jitters were just a bluff, and the stock has returned to a neutral-to-bullish position.

ITW Stock Charts

Looking at the multiyear weekly chart, note that in August 2012, ITW stock accomplished a major breakout move when it overcame diagonal resistance that stretched back to 2007. Also note how the stock coiled up below this multiyear resistance point before breaking above it. This then catapulted ITW shares higher, and they continue to trade in an orderly upsloping channel.

Through this lens, the big run-up would only peak on a move out of the channel on the upside, or if the early August lows would be broken.

Or, in other words, the trend continues to be ITW’s friend.

ITW stock weekly chart
Click to Enlarge

On the daily chart, we see that the early August lows in ITW stock coincided with the rising 200-day simple moving average (red line), which has held as support ever since summer 2012. The sharp 9% August rally then brought the stock right back to its June highs, then settled into a tight consolidation pattern. The pattern is taking the shape of a so-called bull flag formation, which as the name indicates tends to resolve to the upside.

What makes this current setup particularly interesting to watch is that the consolidation is taking place right below the June-August resistance line. The longer the stock coils up below this line, the better the chances of an ultimate break above it.

ITW stock chart daily
Click to Enlarge

Active investors would be wise to watch this stock closely, as a break above the $89.50 area could easily get it moving into the mid- to high $90s over the next few months.

Like what you see? Sign up for our daily Beat the Bell e-letter and get investment advice delivered to your inbox every morning!

Download Serge’s trading plan in the Essence of Swing Trading e-book here. As of this writing, he did not hold a position in any of the aforementioned securities.


Article printed from InvestorPlace Media, https://investorplace.com/2014/09/illinois-tool-works-itw-stock/.

©2024 InvestorPlace Media, LLC