בס״ד

Feeling Like a Daredevil? (DD)

Posted on January 23, 2020

Today’s trade looks at another pack of corporate murderers, DuPont de Nemours Inc. (NYSE:DD), makers of a broad array of pollutants and non-ingestible carcinogenics.

The stock has performed like H-E double hockey sticks for the last two years, dropping an eye-popping 45% while the rest of the market was up over 15%.

Gone are the glory days, when the company invented materials such as Teflon, Mylar, Dacron, Lycra and Orlon – most of which are known today to be toxic (and which DuPont knew were dangerous for decades, but shhh…).

DuPont’s chemicals have been linked to cancer, chronic kidney disease, thyroid disorders, liver disease, infertility, and low birth weight.

Today, they’re focused on chemicals that are more difficult to prosecute.

The company’s fundamentals are perfectly in order, but today they’re facing bigger issues.

Like Bayer (BAYRY), which we highlighted in this space less than a year ago, DuPont could face substantial losses in court.

Two weeks ago, a bill was introduced in Congress that would place a range of hazardous chemicals on government watch, open DuPont (and others) to litigation, and, if passed, force them to spend billions on clean-up expenses in a number of states.

More than that, it could prove a PR nightmare and put the company on a defensive footing as health and environmental activists begin to shake the hankie.

And it’s with that in mind that we now turn to a daily chart of the company for the last twelve months –

The breakdown’s like this –

  1. All the stock’s moving averages are unfurled and trending lower.
  2. A long term descending triangle pattern is now complete (in red). The formation is always bearish and portends a further drop in price over the intermediate term.
  3. The break lower was followed by a bounce to test the former support line (now resistance) at $63 (in blue).
  4. With that behind us, an immediate entry point for a trade has been created. There’s no RSI or MACD oversold indication (in green), so we have a clear sell signal.

Hard to say.

But with the rest of the market on an immoral tear higher, and DD barely clinging to her high-wire act, we believe any weakness on the broad market indices would trigger a tumble.

That said, it pays to get some perspective from a longer term chart.

This is the DareDevil weekly paste-up for the last three years.

Note well how much room the shares have to fall before touching the lower edge of the trend channel (in red) –

Technically, there’s little to commend the stock going forward.

  • Both RSI and MACD are sub-waterline bearish (in green), and
  • Both have issued positive divergence ‘fails’ in the last month (in red). Positive divergence occurs when selling pressure is losing momentum – generally a good omen for a falling stock.  But when that divergence is broken, as it is here, one should expect the selling to pick up steam.
  • And finally, both short- and mid-term moving averages have begun to roll over.

This is the beginning of a new leg lower for DD, and we’re playing it by buying a PUT spread.

Like this –

A Jew and His Gold recommends you consider buying the DD July 17th 60 PUT for $3.95 and selling the DD July 17th 55 PUT for $1.93.  Total debit on the trade is $2.02.

Maximum gain on the initiative is $2.98.

Maximum loss is $2.02.

Many happy returns,

Matt McAbby

 

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