Albemarle (ALB) was downgraded to Hold today by TheStreet.com's quantitative service. The specialty chemicals company with its headquarters in Charlotte, NC, has fallen nearly $50 from its November zenith. Looking at the charts and indicators today I can agree with the direction of the quantitative evaluation but I don't think it goes far enough. ALB looks like it has made an important top formation and further price weakness lies ahead, in my opinion.
In this daily bar chart of ALB, below, we can see how ALB went from an uptrend to a sideways trend and then into a downtrend. The slope of the 50-day simple moving average line was positive from March to late November and then it turned negative. The 200-day moving average line was bullish until mid-January when its slope turned flat or neutral. In February the 50-day moving average line declined below the 200-day line for what is commonly referred to as a bearish dead cross. The signal comes late but it can be effective in identifying a new trend. In January you should be able to see a gap to the downside as ALB plunged below the 200-day line. This month prices improved but they stopped below the 50-day and the 200-day line. Now look at the On-Balance-Volume (OBV) line which did not make a new high in November when prices made new highs -- clue number one. From the middle of January the OBV line has fallen sharply telling us that sellers of ALB have been more aggressive. The Moving Average Convergence Divergence (MACD) oscillator moved below the zero line in November for an outright sell signal. ALB is still below the zero line.
In this weekly bar chart of ALB, below, we can see more sell signals. Prices are below the cresting 40-week moving average line. The weekly OBV line has been weakening for the past four months and the MACD oscillator on this time frame is bearish. Looking for a chart pattern? It looks like ALB has been tracing out a head and shoulders top formation since April -- imagine a neckline at $105.
In this Point and Figure chart of ALB, below, we can see a large distribution top formation with a breakdown today and a downside price target of $89.53.
Bottom line -- the quantitative downgrade of ALB today should point you in the right direction but I think the charts are actually weaker than the number crunching. If you take a price projection from the head and shoulders top (a neckline at $105 and the top of the head of the pattern at $145 gives you $40 down from the neckline) you should get a downside price objective in the $65 area.
