Painting the Charts Red

By -

VAL (Valspar Corp) and SHW (Sherwin-Williams Co) are about to paint the charts red as both stocks look to be offering very attractive short entries around current levels.  Starting with VAL, let's take a look at the daily chart.  To begin with, VAL recently put in an Island Cluster Reversal Pattern,
which is a potentially powerful candlestick topping pattern. 

The
formation of this pattern began with the giddy Jan 2nd rally gap up and
was completely recently with the large gap down on Feb 12th. 
Coincidentally or not, that gap down managed to bring prices just below
VAL’s primary uptrendline which began with the Aug 2011 lows.  Prices
have since struggled to regain that trendline as VAL has backtested it
from below for the last week or so.  Therefore, I’m adding VAL as a
active short here at 62.07 with an initial target of 55.55.  A logical
stop would be on a move above the 64 level, which is just above the
lowest point of the island cluster of prices.

VAL daily


Moving on to SHW, as the daily chart below illustrates, prices are approaching the apex of a bearish rising wedge pattern which
has formed following the breakdown of the ascending channel that began
back in the fall of 2011.  As the weekly chart (bottom) shows, SHW has managed to
wedge higher in price while the MACD & RSI have lagged
significantly (negative divergences). 

At this time, T2 is my preferred
target although that might be extended soon.  To play it safe, I’m going
to wait for prices to break below the bottom of the wedge before
shorting although an aggressive trader could certainly establish a
partial or even full position here with a stop not too far above the 167
area.

SHW daily
SHW weekly

Keep in mind that birds of a feather often flock together. VAL & SHW are in the same industry (paint
manufacturers) and as such, will most likely move relatively in tandem (as evidenced by the stock price lauch & subsequent ascent following the mid-late 2011 lows in both stocks). 

Therefore, make sure to adjust your position size for the overlap if
taking both short trade.  e.g.- If your normal position size is $10k,
you might short $5k of VAL and $5k of SHW.  You can visit RightSideOfTheChart.com to view these charts in full-size as well as the weekly chart of VAL or any subsequent updates or revision to these trades.

Mark This Post as a Favorite