Dow Chemical Could Be Headed for a Deep Selloff

Dow Chemical (DOW) - Get Report is very near a breakdown point. The stock's narrow May range is on the verge of expanding to the downside in a big way. Dow Chemical's hold on key support near the $50.50 area has attracted very little bullish interest of late. A clear break of this level could spark an aggressive selling wave.

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Dow's rally off the January low drove shares over 35% higher by late April. This powerful move took out multiple layers of supply along the way. It wasn't until the stock began to pierce the $53 area that signs of exhaustion came to light. This major resistance zone, which includes the extremely damaging Dec. 11 breakdown gap at $54.35 as well as multiple monthly highs, drained all the of Dow's momentum. Since peaking in April, the stock has been drifting lower while overhead pressure increased. This weak action continues as this week comes to a close putting shares in a very vulnerable spot.

In the near term, Dow Chemical bulls should keep a close eye on the $50 area. A close below this level would take out both the May and April lows, leaving behind a mountain of overhead supply in the process. A drop down to the stock's 200-day moving average would likely follow. If Dow can regain its footing near this important level, a low-risk buying opportunity will develop for patient investors.

From a fundamental perspective, Dow Chemical is a holding in Jim Cramer's Action Alerts PLUS charitable portfolio. Cramer recently said he prefers Dow Chemical to Monsanto  (MON) as a play on the seed business. "Dow and DuPont (DD) - Get Report  are combining and then they are spinning off the number one seed play," said Cramer. He said that if Dow and DuPont finally merge, it will create a "real winner."

Disclosure: This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.