NEW YORK (TheStreet) -- On October 5 we wrote a bullish story on DuPont (DD) - Get DuPont de Nemours Inc. Report , and before the ink was dry, the stock took off in reaction to CEO Ellen Kullman stepping down. We only looked at the technical setup on the chart and had no advance information. Luck -- sometimes you just step in.
In the chart above, we show a Japanese candlestick chart of DD. The latest entry is a potential doji pattern. A doji is a session where the open and the close are the same or nearly the same. This indicates a balance between bulls and bears. Candlestick charts excel at spotting reversals. There are three elements to the proper application of candlesticks. First is the right location. You need something to reverse, and for DD, we have a strong rally preceding the doji. The second element is the right pattern. The third element would be confirmation on the next session. A bearish candle session on Friday would tip the balance to the bears.
This chart of DD above doesn't show anything really wrong with the rally. The On-Balance-Volume line is rising with the price action. There is the start of a small bearish divergence between the price rally and the momentum study, but I don't feel it is an issue yet. However, there is a big band of overhead resistance beginning around $65. With a doji pattern and potential reversal in front of a band of resistance, we would suggest taking some partial profits. No need to sell everything, but trimming the position is not a bad idea at this juncture.
Separately, TheStreet Ratings team rates DU PONT (E I) DE NEMOURS as a Hold with a ratings score of C. TheStreet Ratings Team has this to say about their recommendation:
We rate DU PONT (E I) DE NEMOURS (DD) a HOLD. The primary factors that have impacted our rating are mixed - some indicating strength, some showing weaknesses, with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks. The company's strengths can be seen in multiple areas, such as its largely solid financial position with reasonable debt levels by most measures, reasonable valuation levels and notable return on equity. However, as a counter to these strengths, we also find weaknesses including deteriorating net income, weak operating cash flow and a generally disappointing performance in the stock itself.
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- The debt-to-equity ratio is somewhat low, currently at 0.90, and is less than that of the industry average, implying that there has been a relatively successful effort in the management of debt levels. Along with the favorable debt-to-equity ratio, the company maintains an adequate quick ratio of 1.24, which illustrates the ability to avoid short-term cash problems.
- Current return on equity exceeded its ROE from the same quarter one year prior. This is a clear sign of strength within the company. In comparison to other companies in the Chemicals industry and the overall market on the basis of return on equity, DU PONT (E I) DE NEMOURS has underperformed in comparison with the industry average, but has greatly exceeded that of the S&P 500.
- The company, on the basis of change in net income from the same quarter one year ago, has significantly underperformed when compared to that of the S&P 500 and the Chemicals industry. The net income has significantly decreased by 45.7% when compared to the same quarter one year ago, falling from $433.00 million to $235.00 million.
- Net operating cash flow has decreased to $200.00 million or 25.65% when compared to the same quarter last year. In addition, when comparing the cash generation rate to the industry average, the firm's growth is significantly lower.
- You can view the full analysis from the report here: DD