The Short Case for United Technologies

We have selected United Technologies (UTX) as of this week's stock of the week. If the market declines, United Technologies will almost surely decline along with it. Consider this a market play.

Stock Selection: Once we know the direction of the Market, then we have to look for stocks which we believe will move along with the Market when the Market makes its move. In this case, UTX offers a few signs that tell us: 'if the Market is weak, UTX is likely to be weak as well.'

Valuation: UTX's valuation ratios make it look a little expensive. The stock currently has a price earnings multiple of 17.38. The company pays a 1.6% dividend too. However, the long term growth estimate for United Technologies is only 11.72. From a valuation standpoint, the stock trades at a premium. This is one sign that suggests UTX will trade lower with the market if the market begins to weaken; most people are willing to exit expensive-looking stocks when the Market is weak.

Technical Analysis: Next, a technical analysis of UTX suggests that the stock has recently failed to test longer-term resistance, and it has subsequently turned lower and broken below longer-term intra-channel support. This tells us that the longer-term trend of UTX is likely to continue to move lower until such time as longer-term support is tested again. The risk associated with turning lower before an official test of resistance means that the forthcoming test of support may result in a break of support too. This is the supporting tool that suggests UTX will be weak when the market is weak.

UTX 1-yr chart