We last commented on Cummins (CMI) on Nov. 2. We suggested taking profits as the charts were signaling weakness as prices failed to reach our $140 price target. In a surprising post-election rally, CMI finally reached our $140 price objective, so go figure.
Looking at the subsequent chart activity and indicator erosion brings us to the same conclusion -- to book profits. Are we talking out of both sides of our mouth? Read on.
In this updated daily bar chart of CMI, above, we want to focus on the price activity over the past three months. At the beginning of November CMI was below the flat 50-day moving average line. In late December CMI was testing the 50-day moving average from above and yesterday it traded sharply below that line.
The On-Balance-Volume (OBV) line was weak in October but saw an uptick in November. As prices made a new high in early December the OBV line failed to break out to a new high. A bearish divergence from the momentum in November and December keeps us on defense. Prices made higher highs in November and early December but the 12-day momentum study made lower highs telling us that the pace of the advance slowed.
In this updated weekly chart of CMI, above, we can see that prices are still above the rising 40-week moving average line. Shift your attention to the left side of the chart for a moment. See that sideways price action or consolidation before the 2015 decline? I consider this area a band of resistance and in November and early December we got to see prices put up into this resistance zone and old longs got a chance to finally "get even."
In the first panel below the price chart is the volume histogram and it shows that volume has declined during the entire 2016 rally. The weekly OBV line in the middle panel shows a mild decline from October -- not the sign of a robust bull move. In the bottom panel is the Moving Average Convergence Divergence (MACD) oscillator, which looks poised for a crossover and a new liquidate longs sell signal.
Bottom line: I don't want to appear like the boy who cried wolf but CMI still looks toppy and vulnerable. CMI could retest support around $130 in the weeks ahead and longs need to worry if CMI closes below $125.