There seems to be considerable controversy as to the future price of Air Products and Chemicals (APD). Apparently, analysts are pretty much evenly divided as to what the fundamental and technical indicators are telling them. Drawing from my own experience, I have reasoned that extremely complex indicators are similar to our tax code. Every expert will render a different opinion when given the exact same data.
Air Products is trading at a very interesting point within the price structure. As you can see from the block matrix, there are some blocks which are very large for this issue. I want to focus on the last three. Although they are reported as three separate trades, I believe they can be viewed as a single trade.
This could be similar (but different) to the way an advisory firm might allocate a trade within a master account and distribute it to other subordinate accounts. Whatever the particulars - I still view them as a single trade.
The blocks of June 7 are the largest blocks to trade in this issue since 2008. They represent 200% of the three-month average daily volume. In addition, on that date the aggregate volume was over 300% of the three month daily volume. This volume and block activity is in conjunction with a pullback of 75% from the recent highs of $92.79. I further believe these blocks were reported after the close to conceal them from the investing public. It is not very often you witness a big block transact real time during the trading session. Notice how the blocks traded at either right at the open or after the close. This is not a coincidence. It is by design.
Obviously, the Designated Market Maker in this issue established a very important merchandising stance. Whenever you witness blocks this large (based on the historical data of the individual issue being evaluated) subsequent to a 50% decline, serious price consequences must follow.
There are two additional technical chart formations that I find interesting, but not compelling: A mini inverted head and shoulders pattern is just about complete, which is bullish; and the price has penetrated the ten and twenty day moving averages to the upside.
That said, the most important indicator to me is volume and when that volume manifests itself. If there was ever a time to distinguish the difference between data and information, as an aid to judgment, we find it here. The difference is that volume always leads price and price leads all of the other indicators.
Understanding the practical aspects of the DMM system is supremely important, if you expect to anticipate consistently the short-, intermediate- and long-term price of a stock.
On the Basis of the foregoing, these are my views and observations:
I recommend establishing a long position in Air Products. Open your position with only one-fourth of whatever capital you intend to commit to Air Products at $79.00. Purchase the remaining 3/4 of the position at $72.68 and stop out at $69.71. Do not post your stop out. I have said it before, but it is so important that at the risk of being redundant and in an abundance of caution I will say it again. It is too easy for the Designated Market Maker to cash investors out by moving the price above or below your stop out and move the price right back down or up again.
In addition, when a stop out is triggered, it converts into a market order and that could be disastrous if the Designated Market Maker decides to really take advantage. Remember the "Flash Crash"? You should be looking to exit the trade at an upside price target of $87.00. Do not allow this position to exceed 5% of your overall portfolio. You should consider establishing positions by selling some near close to expiration puts in the hopes of having the stock put to you. If it is put to you, then the premium will bring the cost basis down and if not then the premium is money in your pocket. The same rules for position sizing would apply.
There is always the possibility that the trade may not work out.
There Is Never A Sure Thing (particularly on a short)
Investors must realize and recognize that there is never a sure thing. Sometimes events that have a low probability of occurring bring forth very serious consequences should they come into being. Investors must judiciously consider what the inherent practical limits are and how much they stand to gain in relation to the risks involved in establishing any position.
In addition, persistence can become desperate folly by allowing a losing position to become a viable argument for deciding on a new position. Rather, such decisions should be based on the current and soon-to-be circumstances.
Any position in which one unexpected factor has a significant impact on your portfolio is the result of poor planning. It is a fault most commonly associated with people who want to explain away their losses. SUN TZU -Art of War: "Use an attack to exploit a victory, never use an attack to rescue a defeat."
If you follow the process recommended and the trade does not work, the overall loss in this model is $3,000.00. That amounts to .003 of the overall portfolio (theoretically valued at $1,000,000).
And finally, never be a brave and brainless investor because a fool and his money are soon parted.
A portfolio of $1,000,000 should position size in the following manner.
This is a trade, not an investment. Be ever vigilant.
Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in APD over the next 72 hours.