Air Products & Chemicals, Inc. (APD) — This large-cap supplier of industrial gases and equipment and specialty and intermediate chemicals also manufactures environmental and energy systems.
On Jan. 29, APD stock jumped 6.5% after the company reported better-than-expected fiscal Q1 earnings. However, revenue of $2.36 billion fell short of the consensus estimate of $2.45 billion.
Following the report, S&P Capital IQ Equity Research, which rates APD stock a “Hold,” cut its EPS estimates for fiscal 2016 and 2017 and lowered its 12-month target to $128 from $135. Its analysts cited lower peer valuations and currency headwinds as reasons.
APD stock has been in a bear channel since hitting an all-time high at $158.20 in March. The distance between the support and resistance line of the channel is about 22 points, which is more than enough to produce a profitable short sale.
Currently, the resistance line of the channel rests at about $137, almost touching the 200-day moving average at $137.66. The channel’s support line is at about $115, just above the recent low at $114.64.
The recent rally from the support line came on higher-than-average volume, but selling volume has exceeded buying volume, which backs my downward bias. Plus, the MACD internal indicator is overbought.
Sell APD stock short at $132 or higher with a target of $115 for a potential gain of at least 13%. Traders should protect against the potential for theoretically unlimited losses by entering a stop-loss order at $140.
Also, be aware that if you hold shares short through a dividend (stock or cash), you could face additional liabilities. Air Products & Chemicals’ next ex-dividend date is expected to be in late March.
