Eaton (ETN) made a large outside day and lower close yesterday (chart below). What? I understand what a lower close means, but what the heck is an outside day?
An outside day, like Thursday, is a day when prices for the security go above the prior day's high and below the prior day's low. Part of the day shows that the bull is in charge, and part of the day shows that the bear now has more strength, with prices breaking yesterday's low and closing lower.
In my class at Baruch College I try to explain it like the game of paper-rock-scissors. Thursday's price action was like paper and it wraps around Wednesday's price action, which could be seen as a rock. Unless you never played the game, you should get the picture.
In this daily bar chart of ETN, above, we can see that it has made a respectable rally from near $50 to over $70 in the past 12 months. Not bad. Prices are above the rising 50-day simple moving average line and above the 200-day simple moving average line.
The On-Balance-Volume (OBV) line has moved up with the price action in the past year and confirms the advance, with heavier volume on days when ETN has closed higher. The OBV line is a simple way to see if volume is increasing in the direction of the trend.
In the lower panel is the 12-day momentum study, which shows a bearish divergence from November till now, as prices made higher highs and momentum made lower highs. ETN was losing upward momentum.
In this three-year weekly chart of ETN, above, we can see that prices are above the rising 40-week moving average line -- the trend is up. The weekly OBV line did not make a new high in the past month, as prices made a new high. This is a bearish divergence, with prices making a new high but our indicator not matching that gain.
In the lower panel is the 12-week momentum study. Since April, ETN has made higher highs but the pace of the advance has slowed. The weaker momentum readings suggest that ETN could stall and trade sideways in the weeks ahead.
Bottom line -- the trend of prices on ETN is still up, but we have enough caution flags from the indicators to suggest that we could see a sideways trading range for a while with perhaps a $72 to $66 range.