Similar to our recommendations for DuPont (DD), we suggested on Dec. 9 to book profits on Dow Chemical (DOW). We dodged a bullet as prices returned to September lows, retesting the $40 level. What now?
In the chart of DOW, above, we can see the round trip it went on. The On-Balance-Volume (OBV) line went up in October and November with the price rally, and peaked in December. It is a little encouraging that the OBV line has slowly inched up the past two weeks. Prices have bounced off the $40 level twice, which gives it some credibility as a support area.
The longer-term chart of DOW, above, is mixed. The declining 40-week moving average is a negative, as is the Moving Average Convergence Divergence (MACD) oscillator below the zero line. But we also have the OBV line in a long-term uptrend and the $40 level looking like pretty important support. We will respect the $40 support level unless proven otherwise. (Dow Chemical is part of TheStreet's Action Alerts PLUS portfolio.)
Traders who want to approach the long side again can do so with a stop loss order below $40. Successful investors know it is all about risk control.