In yesterday's episode of CNBC's Mad Money, host Jim Cramer said of home appliance manufacturer Whirlpool (NYSE:), during the "round of lightning" where he quickly offers his two cents on a list of securities : “I like Whirlpool a lot…I'm going to be a buyer.”
With all due respect to Cramer, we strongly disagree. After his quick recommendation, we looked at the stock's technical chart and – to put it mildly – we were not happy with what we saw. A lot seems to have been sold lately.
So we did some digging and found that executives apparently dumped the company's stock. That's never a good sign.
Take, for example, Joseph Liotine, the Executive VP and President of the North America region. In the past three months, he has sold $2.6 million worth of shares.
At the same time, there is no evidence that management bought the shares in the past year. Apparently they don't think the recent and current price is a bargain.
To clarify, by itself, this doesn't necessarily mean nefarious activity or that company insiders know anything that would lead to a sell-off. Still, it doesn't exactly boost confidence in the stock of the Benton Harbor, Michigan-based company either.
All things being equal, the broader wind of consumer spending is shifting. While purchases of large items for things like home appliances peaked in the US during the pandemic lockdowns, with the reopening, consumers have begun to look forward to spending on travel and out-of-home entertainment.
That's an argument for Whirlpool's stock price to age, if not downright fall. This is what the map shows:
The largest sale of insider shares occurred between $237 and $230, which formed the right shoulder of an H&S summit. Note, however, that the right shoulder actually peaked at $243.04 resulting in a Bearish Engulfing pattern. This might suggest that there was a lot of sales going on besides that one $2.6 million sell order that we know of.
In fact, the Rate of Change, which measures momentum, caused a negative deviation from the rising price between mid-March and early May. Also, volume peaked as price built the left shoulder and declined as it peaked higher and formed the head. Those are signs of declining demand… and that was before Liotine made its huge sale.
In any case, the price completed an H&S top, bottoming out around the time of the executive's sale. Whirlpool has since recovered from its mid-June low of $206.84.
However, he failed to go back over the 100 DMA after falling under it, while doing the same with the 50 DMA in the middle of the right shoulder. The recent rise was followed by profit-taking, a 13% plunge in just nine sessions, between the high of June 7 and the low of June 17, setting a bullish flag.
While it may be counter-intuitive despite the flag raising, it is making a bearish pattern – complete with the downward breakout. Indeed, the fact that it is rising makes it bearish, as it shows that it only does so on take profit moves by short sellers (OK, and maybe some dip buyers).
Why do we assume they are short sellers instead of bulls?
Note the dried up volume after the sale. That indicates in which direction, buy or sell, the current is going. Now it's with the sellers. This confirms the above-mentioned Rate of Change. It shows how momentum has declined since its peak in mid-March.
The H&S was needed to push prices below the 50 DMA and 100 DMA, but traders used the 200 DMA benchmark as an opportunity to make money, allowing the market to take a breather and attract new shortsellers at a higher price. price could sell short. This is expected to break the bottom of the flag and signal previous bears to jump back for another leg down.
Trading Strategies
Conservative traders must wait for the price to fall below 200 DMA followed by a rise confirming the resistance of the primary moving average before shorting the stock.
Moderate traders would be short after a disturbance with a very long candle under the flag.
Aggressive traders can short at will, provided they have a pre-established plan that justifies the risk. Here's an example:
Trade example
Input: $216
Stop Loss: $219
Risk: $3
Target: $186
Reward: $30
Risk: Reward Ratio: 1:10
