Trade-Ideas LLC identified

Dow Chemical

(

DOW

) as a "roof leaker" (crossing below the 200-day simple moving average on higher than normal relative volume) candidate. In addition to specific proprietary factors, Trade-Ideas identified Dow Chemical as such a stock due to the following factors:

  • DOW has an average dollar-volume (as measured by average daily share volume multiplied by share price) of $422.5 million.
  • DOW has traded 2.1 million shares today.
  • DOW is trading at 2.60 times the normal volume for the stock at this time of day.
  • DOW crossed below its 200-day simple moving average.

'Roof Leaker' stocks are worth watching because trading stocks that begin to experience a breakdown can lead to potentially massive losses. Once psychological and technical resistance barriers like the 200-day moving average are breached on higher than normal relative volume, the stock may then be subject to emotional selling from investors that can continue to drive the stock lower. Regardless of the impetus behind the price and volume action, when a stock moves with weakness and volume it can indicate the start of a new, potentially dangerous, trend.

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More details on DOW:

The Dow Chemical Company manufactures and supplies products that are used primarily as raw materials in the manufacture of customer products and services worldwide. The stock currently has a dividend yield of 3.6%. DOW has a PE ratio of 1. Currently there are 6 analysts that rate Dow Chemical a buy, no analysts rate it a sell, and 6 rate it a hold.

The average volume for Dow Chemical has been 6.5 million shares per day over the past 30 days. Dow Chemical has a market cap of $57.9 billion and is part of the basic materials sector and chemicals industry. The stock has a beta of 1.30 and a short float of 2.5% with 2.83 days to cover. Shares are down 2.9% year-to-date as of the close of trading on Monday.

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TheStreetRatings.com

Analysis:

TheStreet Quant Ratings

rates Dow Chemical as a

buy

. 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, notable return on equity and solid stock price performance. We feel its strengths outweigh the fact that the company has had sub par growth in net income.

Highlights from the ratings report include:

  • The debt-to-equity ratio is somewhat low, currently at 0.66, 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 1.32, 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, DOW CHEMICAL has underperformed in comparison with the industry average, but has greatly exceeded that of the S&P 500.
  • After a year of stock price fluctuations, the net result is that DOW's price has not changed very much. Although its weak earnings growth may have played a role in this flat result, don't lose sight of the fact that the performance of the overall market, as measured by the S&P 500 Index, was essentially similar. Turning our attention to the future direction of the stock, it goes without saying that even the best stocks can fall in an overall down market. However, in any other environment, this stock still has good upside potential despite the fact that it has already risen in the past year.
  • DOW, with its decline in revenue, slightly underperformed the industry average of 7.2%. Since the same quarter one year prior, revenues fell by 13.5%. Weakness in the company's revenue seems to have hurt the bottom line, decreasing earnings per share.

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