Yesterday, Jim Cramer liked the Wells Fargo (WFC) call to buy Kimberly-Clark (KMB) and I get it, but this one comes with a very big caveat after looking at that the charts. After recently bottoming just below $104, KMB has bounced sharply back to $110 before fading yesterday. And I could see this one pushing higher and filling the gap up to $117. But, and this is a big but (like Sir Mix-A-Lot big), there is risk here. The risk rests all in price. When I look at the slightly longer-based technicals drawn out to a 13-period base rather than an eight-period base, I can see exactly what Jim and WFC see. The relative strength index (RSI) is still over 50, favoring the bulls. We have a longer-term moving average convergence divergence (MACD) indicator showing momentum returning and trend turning bullish, which is further confirmed with the bullish crossover in the vortex indicator. So what's missing? Price.
If we just focus on price, KMB is at risk of losing this recent bullish trend line. Now this sharp trend line is much shorter in nature than the indicators; hence, why the short-term bullish camp still holds the edge. Losing this trend line won't mean KMB becomes a short candidate, but it will likely need time to consolidate this push before making another attempt at clearing the $110-$111 resistance area. Overall, that is the area I want to buy. Yes, it is higher, but we are talking about 2% here. I'll give up 2% on the upside to avoid a possible 5% on the downside. I do think a push higher here is the more likely event, but until we get over $111, I would simply keep this one on the bullish watch list.
Meanwhile, the pushback view to the weekly chart provides something much more interesting and eye opening. Basically, this chart shows us the risk of that pullback. It may just be 4% or 5% on the daily chart, but a move under $105 on the weekly chart triggers a head-and-shoulders pattern and the loss of long-term support, putting a $93 target in play. At the very least, I would expect KMB to return to a sub-$100 mark. The good news is we are still over support, so there is a clear stop and $110 doesn't look quite as daunting for the longer-term investment. While the technicals were supportive of the bulls on the daily chart, they are the opposite for the weekly chart. The RSI sits just under 50, but a little nudge would get the bulls a bit of favor; however, the vortex indicator is still implanted in bearish territory. Furthermore, we see the Ease of Movement (EMV) indicator firmly in negative territory, implying the easiest movement currently for the stock would be lower.
Overall, it appears that avoiding KMB when EMV is at extremes is the best course of action. Right now, that's where we are, but if the stock holds support, RSI goes back over 50 and EMV starts moving higher and crosses above -5, then a nice gap fill to $117 is on the table for the taking.
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