International Paper Co (IP) — IP stock may offer an opportunity for traders looking for quick bullish gains even at these lofty levels.
The broader market rally off the early 2016 lows — part central-bank induced, part the result of technically oversold conditions and record levels of stock buybacks — has been one of epic proportions. Much of the focus has been on the most oversold areas like basic materials.
After a nearly 25% run from its January lows in one of the most astounding V-shaped reversals I have ever seen, Materials Select Sector SPDR (XLB) is up about 6.5% year to date. While I am reluctant, to say the least, to chase stocks at these levels before a meaningful consolidation phase, near-term momentum may provide an opportunity in IP stock for quick hitters.
On the weekly chart, the rally off the January lows brought IP stock back to a former support area (blue box). Through an intermediate-term lens, shares remain in a downtrend, although the correction off the early 2015 highs retraced nearly 50% of the 2009-2015 rally.
Moving on to the daily chart, note that while IP stock rallied strongly from late January into mid-March, the price action since then has been mostly sideways. More specifically, over the past few weeks, IP stock consolidated below its 200-day simple moving average (red line) before finally breaking above it last week for the first time since May. As a result, it is now pushing up against a horizontal resistance line that stretches back to late 2015.
If buyers can keep enough momentum going, which will likely depend on the broader market’s underlying force, the next upside target would be near $44. While that is only 5% above the current price, I prefer to stick with conservative targets given how far the market has come already.
A word of caution: The recent slide in the U.S. dollar helped boost materials stocks. So, if the dollar index reverses higher, this group is likely to come under pressure quickly.
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As of this writing, Serge did not hold a position in any of the aforementioned securities.
