Lawn Dart pattern on Cummins (CMI) (December 18, 2015)
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Cummins ( NYSE:CMI ); I noticed that Jim Cramer was talking about this on Mad Money on Friday. First of all he was saying that he didn’t think the stock was done going down. So Jim wasn’t calling a bottom, but he was talking about how it might be about time to be buying this stock. So I was looking at this, and I can see where the acceleration has really been to the downside. But I’m looking at the weekly chart. This looks like a lawn dart, one of those things, you’re throwing it and gradually it kind of “peters” out then hopefully hits the circle on the other side of the lawn. Or, when I was a kid, your brother’s foot. (I don’t think they make those things anymore)
The bottom line it this, the way this stock is trading, you see the massive volume here over the last three weeks, so this could potentially be capitulation. A 4.5 percent dividend, that’s a pretty enticing yield. But here’s what I’m telling you, this has some SERIOUS downside momentum. Some SERIOUS momentum. And so what I would suggest doing is this, I think, frankly, you can short this stock. I think there’s plenty of room to short this stock. This isn’t coming back anytime soon, not with these technicals and not with this market. But this is how you cover that short: you look at last weeks intra-week high, 88.52. You’re shorting this stock now. If this stock starts trading back above last weeks high, that’s when you want to cover the short.
You can look at this on the prior week. The intra-week high was 92.47. You could have used that same strategy and that would have worked fine too. The same thing here versus that. So we see this stock chopping around here. I guess I could say, “Well, you know we’re getting near the bottom. Oh this could be capitulation because of this volume.” That’s fine, but all I’m seeing is massive distribution. I’m not seeing any sign that the end is near. I’m just seeing massive distribution, and distribution can occur for quite a while; particularly since I’m doing this video on Friday, December 18th, and we’ve got two more weeks of trading before the end of the year. Anybody who’s long Cummins ( NYSE:CMI ) this year has been losing their “asterisk”. They’ve been absolutely getting crushed.
So what do you think that they’re going to be planning on doing before the end of the year? They’re going to be selling. They’re going to be selling, and selling, and then by the way, then they’re going to sell some more. So my suggestion would be ABSOLUTELY stay out of this stock. There’s plenty of time to buy it if the bottom does occur. If the stock reverses, look, you can always hop in. So I’m not keeping you out of a great trade. What I am telling you is, this is a stock that’s on the way down, it’s going lower. My bet is it at least hits 80.00 and from where it is right now, that’s almost a 7 percent decline. I think you’ve got more downside here. So watch the weekly chart for signs of a reversal. I think you’re going to be watching it for a while.
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