Praxair (PX) Is Meat for the Bears

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Shares of Connecticut-based gas supplier Praxair, Inc. (PX) slipped Wednesday after the company’s third-quarter results missed on both the top and bottom lines, as well as lowered guidance. And from a technical perspective, PX stock resumed its recent breakdown, which looks to have plenty more downside.

beat the bell stock investing advicePraxair earnings came to $1.62 per share, missing analyst estimates by a penny. Meanwhile, revenue came in at $3.14 billion, which also came up short of expectations for $3.17 billion. Still, EPS were higher by 7% year-over-year and sales were up 4%.

As it often goes, a company’s outlook is more important than the rear-view mirror earnings. In that vein, PX lowered fiscal-year 2014 EPS guidance from a previous range of $6.30-6.45 down to a new range of $6.23-6.30, which landed below analyst estimates of $6.36.

When looking at a single stock, it’s a good idea to look at its overall sector for trends, as well as any technical patterns, resistance, support and the like. PX belongs to the basic materials sector, so having a look at the Materials SPDR (XLB) makes sense.

Looking at this chart, we see that after breaking to new highs in May, the sector formed a topping pattern that finally resolved lower as it broke back below the black horizontal in early October. More importantly, the recent V-shaped reversal in the stock — which of course came along with the broader stock market — lost steam right at the black horizontal line. In other words, what used to be support now is resistance.

beat the bell XLB
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PX Stock Charts

Looking at the multiyear weekly chart of PX stock, note that its selloff in late September/early October resulted in a break below the late 2008 uptrend line, which is a significantly bearish development. At the same time, upside momentum has been waning all year, thus the recent breakdown in price has finally followed what momentum has long been signaling.

PX stock chart weekly
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On the daily chart, PX stock looks very similar to the materials sector chart from above. The V-shaped reversal last week brought the stock right back up to its broken multiyear uptrend and the horizontal resistance line, which furthermore coincided with a 61.8% Fibonacci retracement of the entire selloff from the Sept. 19 top down to the mid-October lows. The stock’s 2.5% selloff Wednesday came on a big spike in volume as it staged a failed intraday rally and closed the day near the lows.

PX stock chart daily
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With solid resistance above, active investors could now look to lean short the stock with a price target near $15 (i.e., below the mid-October reaction lows). For risk management purposes, any rally that makes good on Wednesday’s selloff would nullify the setup.

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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/2014/10/praxair-px-stock-decline/.

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