Chart of the Day – $CMI : Cummin Back to Support

by Dan October 29, 2013 12:29 pm • Commentary

I was just listening to some of my CNBC friends on the Halftime program debate whether or not you buy the dip in CMI, a stock that is down almost 9% after the company missed their prior guidance for Q3 and guided down for the balance of the year.  One of the panelists suggested that the trade in 2013 was to buy dips in single stocks and/or equity indices.  That has certainly been the case, while another panelist suggested that there were better quality industrial stocks that don’t have the same issues with credibility as it relates to their guidance.  CMI is not a company I know well from a fundamental standpoint, and the cause for disappointment is likely in emerging markets where they get about a quarter of their sales from.

One thing that sticks out like a sore thumb though is the technical set up.  The one year chart below shows that today’s volume will likely be the largest in over a year, quickly approaching the break-out level from the summer (red line), which also happens to correspond with their 200 day moving avg (yellow line).

CMI 1 yr chart from Bloomberg
CMI 1 yr chart from Bloomberg

Regardless of what your view is on valuation, and the ability for the company to hit the expected 20% earnings growth for 2014, the near term set up from a trading perspective looks interesting back at the prior resistance level of $120 dating back to February.  One more down day, and a stabilization later in the week and it could be worth taking a shot on for a quick trade back to what will now be resistance at $130 into year end.