Illinois Tool Works Inc. (ITW) was reviewed last month where I wrote that "A bullish divergence from the momentum study and a bullish weekly OBV line point to the possibility of a rally in the weeks ahead. Traders should not press the short side of ITW. A rally and close above $150 should open the way for further gains."
In the last five weeks ITW has held the $135 area so we know the short side was not rewarding but it has not rallied above $150. Let's check and see if the bullish divergences are still going to play out.
In this updated daily bar chart of ITW, below, we can see that ITW has been testing the declining 50-day moving average line. The 200-day moving average line is pointed down and well above the market.
The daily On-Balance-Volume (OBV) has been moving sideways the past two months. Further declines in the OBV over the past five weeks would have told me that sellers were still aggressive. The sideways OBV line tells me that buyers and sellers of ITW are in balance.
In the lower panel is the 12-day price momentum study. Price momentum has been making higher lows from early May while prices made lower lows. This is a bullish divergence and tells us that the pace of the decline has slowed the past four months. Bullish divergences like this often foreshadow rallies.
In this weekly bar chart of ITW, below, we can see that prices are below the declining 40-week moving average line.
The weekly OBV line has been steady even as prices weakened the past seven months.
In the lower panel is the 12-week price momentum study which shows the pace of the decline has slowed on this time frame.
In this Point and Figure chart of ITW, below, we can see that prices have held the $136 level.
There is a further downside price target of $128 being shown but the volume at price bars on the left side show that ITW is in a "good area" of support in my opinion.
A rally to $144 will start to improve this chart.
Bottom line strategy: ITW is still in a downtrend but we see enough positive technical clues that aggressive traders could probe the long side here and above $144. Risk a close below $135 looking for an initial rally back into the $155-$160 area.