Shares of Stanley Black & Decker (SWK) have had a real strong rally in recent months. Perhaps it has gotten ahead of itself?
SWK, a holding in the Action Alerts PLUS portfolio, tacked on $25 per share in a hurry -- the chart above shows it all. Prices are above the rising 50-day and 200-day moving averages with a golden cross of the two averages. The On-Balance-Volume (OBV) line rose nicely in February and March but then turned flat while prices continued to advance.
Momentum readings have been diverging from the price -- higher prices but level OBV readings. This bearish divergence suggests a down leg at some point.
In this three-year weekly chart, above, we can see both an uptrend on SWK but also wider up and down swings in price. Some chartists might call these wider and wider swings a broadening pattern. Broadening patterns can be reversals or they can be continuation patterns, meaning they continue the trend before the pattern. I don't have a firm position on the outcome just yet.
Prices are above the rising 40-week moving average line. The OBV line moved up with price but it doesn't look like it made a new high with prices. As prices made new highs the momentum indicator has slowed (bottom panel). This is not the same as a bearish divergence but it is a heads up that the rally is mature.
Conclusion: SWK could dip $10 or even $15 and I may still not know whether this was a reversal pattern or a dip before new highs.