United Technologies (UTX) bounced back strongly this year but the price action and erosion in the indicators this summer indicates the flight plan could get a little bumpy in the weeks ahead.
The daily chart of UTX, below, was strong until July and then some bearish divergences developed. Later in August our moving averages got broken or tested and a test of key support around $98 could be next. Before our indicators weakened, UTX made a low in January and a successful retest in February. Prices took off in late February and eventually gained about 30% -- bad work if you can get it.
Look closely at the movement of the On-Balance-Volume (OBV) line vs. the price action in July and August. Prices make higher highs in these two months but the OBV line diverges with equal highs. The same thing goes for the Moving Average Convergence Divergence (MACD) oscillator. The 50-day average turns down in September, the MACD oscillator goes below the zero line for a sell signal and the OBV line weakens. The 200-day moving average line is being tested and could break, too. Dips to $98 held in May and June but the third test may not be so lucky.
In this weekly chart of UTX, below, we can see that prices are testing the rising 40-week average line. The OBV line did not make a higher high with price in August and the MACD oscillator crossed for a liquidate longs sell signal.
Strategy: Protect long positions and get more defensive if UTX closes below $98.