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Is Sherwin Williams (SHW) the Color of Money?

The market sees SHW's merger news as positive, but the chart tells a different story


Sherwin Williams (NYSE:SHW) rose 5.8% on Monday following an announcement that it had offered to purchase privately held Mexican paint maker Consorcio Comex for $2.34 billion, including the assumption of debt. SHW will finance the deal by selling $2 billion in 5-, 10- and 30-year bonds, which once again shows you how cheap money can help the broad global economic recovery.

Comex sells its products through 3,300 company-owned paint stores in Mexico. This would be the largest U.S. takeover of a Mexican company in eight years. Investors have applauded the deal, but the shares remain firmly within their downtrend so far. It was a fantastic stock for bulls for a year, but SHW has stalled. It now looks ready to roll over in a big way.  I have initiated a position in the SHW Dec 140 Puts, which I see rising to $4.50 mark.

While I do think it’s important to set profit targets and adjust as necessary, in general, I don’t use stop loss points for options in my Trader’s Advantage service because the volatility of options can prematurely take you out of a position. Those wide price swings are precisely where options traders make their money, so don’t let a move spook you out of a good trade.

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