Be Cautious Trading Fortune Brands Home & Security

 | Nov 15, 2017 | 3:08 PM EST
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Fortune Brands Home & Security (FBHS) has been trading in a sideways to higher range since May. While the price action is moderately positive, the underlying technical condition has weakened. The $64,000 question (unadjusted for inflation) is what sort of strategy will allow us to participate if FBHS trades higher but also being cognizant to the risk of breaking the 200-day moving average line. Let's take a closer look at the charts and indicators.

In this daily bar chart of FBHS, below, we can see that prices are between the rising 50-day moving average line and rising 200-day line. Will FBHS rally to close back above the 50-day average or will it turn lower and close below the 200-day line? Volume has been uneven but the On-Balance-Volume (OBV) line has not been as strong as prices and looks like it is reluctant to confirm the trend. The Moving Average Convergence Divergence (MACD) oscillator is below the zero line in sell territory. A cover shorts buy signal from the MACD oscillator may be in FBHS's future if prices rally from here.

In this weekly bar chart of FBHS, below, we can see some underlying weakness and divergences from our favorite indicators. First, prices are testing the rising 40-week moving average line. Volume has been light for several months and the weekly OBV line shows a lower high in October than July for a bearish divergence when compared to the price action making a higher high. The MACD oscillator is also making a lower high versus July and is in a bearish mode.

In this Point and Figure chart, below, we can see that the chart projects a possible downside price target of $58.56.

Bottom line -- if long FBHS I would exercise some caution. If you are looking to go long I would defer purchases. A close below $63 would break the rising 200-day moving average line and might weaken prices further. A close below the August low close around $62 would be another bearish signal.

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