The stock of specialty chemical company Ashland (NYSE:ASH) is currently trading around $86.47 per share, which represents approximately an 8 percent gain year-to-date for 2013. However, the path Ashland's stock took to achieve this respectable figure was filled with numerous twists and turns related to key developments in the company's prospects. A careful analysis of Ashland's price volatility year-to-date provides investors with vital data that can be used to determine an optimal entry point for prospective shareholders.
After closing 2012 at precisely $80.41, ASH shares rang in the new year with an impressive gap-opening that resulted in a nearly 6 percent gain for the very first trading session of 2013. Unfortunately, the promising price momentum had a short lifespan as ASH shares tumbled nearly 10 percent in one day, from the previous close of $85.53 to an intraday-low of $76.23, as a result of the company's fourth quarter 2012 earnings report missing analyst estimates when its was released on January 29. The stock recovered during the trading session to trim the losses and close at $80.43, which was nearly the exact same price that it closed 2012 with, only a month earlier.
Ashland shares suffered further in the wake of fourth quarter earnings missing expectations as J.P. Morgan Chase analysts lowered their price target on the stock to $70 from $74 per share the day after the company's financial results were released. While Ashland's stock did not fall quite as far as the target set by J.P. Morgan Chase analysts, shares of the company did come perilously close when they dropped to their year-to-date low of $72.11 in late-March, after suffering further negative attention from investment bank analysts providing coverage on the stock. On March 27, ASH was down nearly 10 percent year-to-date when a series of reduced price targets and one analyst downgrade were issued the day before by four different investment firms: Credit Suisse, Jeffries, Longbow, and Deutsche Bank. Only two days before, on March 25, KeyBanc cut its price target for Ashland shares to $97 from $103 per share, although it reiterated its previous "Buy" recommendation for the stock.
Since the flurry of analyst activity in the last week of March, shares have recovered to their current price in the mid-$80 range, based in large measure on the April 11 announcement from the powerful hedge fund Jana Partners that it had accumulated a massive 7.4 percent ownership position in Ashland. According to Thomsen Reuters, the enormous stake in ASH makes Jana Partners the second-largest shareholder in the company behind Fidelity Management. Shares in ASH responded forcefully to the announcement by gapping from a previous trading session close of $78.83 to an open of $83.36 before closing on April 12 at $86.66 per share. This is highly significant from the standpoint of technical analysis because the gap-open completely retraced the two previous gaps from the gain on the first trading day of 2013 and the enormous loss on the lower-open from the fourth quarter 2012 earnings report.
Even more encouraging for investors is the fundamental fact that ASH now has a large activist hedge fund offering the stock institutional sponsorship with the possibility of playing a bigger role in potentially unlocking shareholder value. Investment bank analysts covering ASH gave their endorsement of the stake when two prominent ones accordingly raised price targets for the stock only a few days after the announcement of the hedge fund's involvement in the company. After lowering their price targets for ASH less than three weeks before, Jeffries and Deutsche Bank both rushed to increase their price targets on the stock in the wake of the Jana Partners development.
A careful look at the technical readings for the ASH chart reveals that the stock is safely above its 50-day exponential moving average of around $79.30 and well above its 200-day EMA of $74.61. These analytics indicate that the stock remains in a longer-term uptrend since hitting its bear market low of $5.35 per share in March 2009. Over a shorter-term time horizon, ASH is nearing overbought levels with a 14-day relative strength indicator of 77.5, which typically implies an overbought signal when it reaches 80, although some stocks can remain in such territory for extended periods of time before experiencing a price pullback. The 8-day exponential moving average, currently standing at $83.50, is also a useful indicator of short-term price trend that can provide potential investors with valuable insight into more precise entry points.
With ASH shares presently trading around 4 percent above its current 8-day EMA, potential investors with a short-term outlook would be advised to consider the significance of the $83.50 price level. The stock gapped to open at $83.36 after the Jana Partners announcement, which was also nearing the lowest prices for the stock the day before the lackluster earnings report on January 29. This translates into the level around $83.50 being a key price point for ASH in both its positive and negative reactions to fundamental news events. This means the convergence of technical analysis and fundamentals indicate that the market's equilibrium price for ASH under normal trading conditions - without the volatility of news developments - is currently around $83.50 for 2013.
Ashland is scheduled to report the company's first quarter 2013 earnings on April 24, which will provide investors with valuable information about the stock's prospective performance. For investors interested in purchasing ASH shares to hold for a long-term portfolio strategy, the period shortly following earnings will be an optimal time to look at entering a new position. If the earnings results miss expectations again, the shares can likely be bought closer to the 50-day exponential moving average of around $79 per share, which corresponds with the price level prior to the release of the Jana Partners news.
Conversely, if ASH beats analyst expectations for its first quarter earnings, then the stock should break-out above its all-time intraday high of $87.21 that was reached on April 15 when Jeffries and Deutsche Bank analysts reacted to the Jana Partners announcement by raising price targets for the company to the $105 range. This development would indicate that ASH is likely to continue its upward price trend for the foreseeable future and outperform the broader market.
Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in ASH over the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.