Trade of the Day: Traders Could Nail Down a Quick Gain in IP Stock


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.

IP Stock Chart - Weekly
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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.

IP Stock Chart - Daily
Click to Enlarge

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.

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