Has Illinois Tool Works Run Too Much?

Let's check out the latest ITW charts.

Jim Cramer highlights a number of industrial companies in his Real Money column "The Market Is Hungry for Industrials" including Illinois Tool Works (ITW) . Cramer writes that, "ITW is a terrific company that stumbled a couple of years ago and has come roaring back. It's rally has been relentless, up 15% with a 35 P/E. Some may think it has run too much. I look at it differently. In a momentum driven market it's a real favorite" 

We last looked at ITW way back on April 3 and a lot has changed. In April we wrote that, "While the fundamentals of ITW may have improved I suspect that prices are more likely to trade sideways from here for several weeks. It is not time yet to get involved from the long side."

Let's check out the latest ITW charts.

In the daily bar chart of ITW, below, we can see that the shares traded sideways until the middle of May and then began a rally into October. Prices are above the rising 50-day moving average line and above the rising 200-day moving average line.

The On-Balance-Volume (OBV) line bottomed in March/April and has slowly improved into September, It looks like the OBV line has turned sideways now. The Moving Average Convergence Divergence (MACD) oscillator recently turned upwards from the zero line for a fresh buy signal. 

 

In the weekly bar chart of ITW, below, we can see that the shares are in an uptrend and well above the rising 40-week moving average line. Prices look like they are moving in a wider pattern since September. This might be a broadening pattern which could either be a continuation pattern where we see higher prices in the weeks ahead or it could be a reversal pattern and prices decline into year-end.

 

The weekly OBV line has not made a new high and is diverging from the price action. The MACD oscillator has narrowed but is still in a bullish alignment. 

 

 

In this daily Point and Figure chart of ITW, below, we can see that prices have reached and exceeded an upside price target in the $201 area. 

 

 

In this weekly close-only Point and Figure chart of ITW, below, we can see a potential upside price target in the $234 area. 

 

 

Bottom-line strategy: Going long ITW right now would mean I would recommend a stop below $190 with a longer-term price target of $234. The risk/reward ratio of that trade is not compelling and the odds that we are looking at a possible reversal pattern is also not comforting.

 

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