Emerson Electric (EMR) has bounced off the $49 level a number of times over the past eight months, but a lower high in late September and a break of the 50-day and the 200-day moving average lines casts a weaker spin on the charts for the next few weeks.
In this daily chart of EMR, below, we see two attempts to break above the $56 to $57 area -- once in April and again in July. What is interesting is the movement of the On-Balance-Volume (OBV) line. The OBV line is constructed by adding the volume on up days and subtracting the number of shares traded on down days. Heavier volume on down days is a signal that sellers are being more aggressive. Heavier volume on up days shows that buyers of a stock are willing to pay up and not be patient looking for a dip to buy.
Prices and the OBV line made highs in March, but in April, the price of EMR goes to a new high while the OBV line does not match the strength. Now look at July, when EMR makes an equal high compared to April, but the OBV line reaches a new high. The volume behind the second rally was stronger, but prices were unable to break out to new highs. Was this a double top formation? Maybe but we need to complete this possible pattern with a close below the neckline at $49.
In the bottom panel is the 12-day momentum study, which shows lower lows in September and October -- the same as the price pattern. Without a bullish divergence from momentum, we want to be on defence.
In this three-year weekly chart of EMR, below, we can see that prices have broken below the rising, 40-week moving average line and a recent rally to the underside of the that line has failed, so far. The weekly OBV line has been neutral since April, but the MACD oscillator just crossed below the zero line for an outright sell signal.
Bottom line: A close below $49 could precipitate further weakness to the $45 to $44 area by year end.
