DuPont (DD) exploded to the upside last month. On Sept. 17, following the Nelson Peltz breakup chatter, the stock surged more than 5% on its heaviest trade in over a year. The next day, after numerous upgrades, DuPont surged again, pushing well into new yearly highs. Volume remained heavy as shares continued to climb, but an extremely overbought short-term condition began to weigh on the stock, as September came to a close. After a 14% rally off the September lows, DuPont was due for a pullback.
Since the Sept. 24th spike high, DuPont has steadily declined. Over the last twelve sessions, the stock has managed only two positive closes. Early on in this pullback, the stock made a weak attempt at holding support, near its initial 2014 high of about $69.75. On Tuesday, this level gave way, leading to a breakdown. Today, DuPont is working on its fifth straight loss. Even during Wednesday's insane upside reversal in the Dow Jones Industrial Average, the stock finished in the red.
DuPont (DD) - price history and moving averages
Source: FreeStockCharts.com
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The result of this two-week fade is a retest of the upper band of a key support zone. As DuPont approaches the $67.00 level, it is very near the July high. After the late June breakdown, the stock immediately went into consolidation mode. The July high marked the top of the pattern. As this sideways action went on, DuPont straddled its 200-day moving average, while volume fell off a cliff. The stock put in a lower monthly high in August as the range narrowed. With a higher low in September, a solid base appeared to be forming. A powerful upside catalyst was delivered on Sept. 15, and the resulting breakout left behind layers of support. Just below the July high is the August peak at $66.60. The bottom layer includes the 'Peltz' gap and 200-day moving average near $66.15.
This morning, I opened a small long position in DuPont at $67.01. Another buy will take place near the August peak, and again as the 200-day comes into play. A dip below the September low of $64.50 would be a clear warning sign that a more prolonged bottom will be needed before DuPont returns to rally mode. With much of the overbought condition worked off, and the selling pressure beginning to ease, I'm optimistic that the stock can find its footing fairly soon. Today's upgrade from Jefferies is certainly a positive as well.
At the time of publication, Morrow is long DD.