Gas Engine Mftr Shows Signs of Suffering

Market Update: Yesterday the major indexes ended the day in the green, with the NASDAQ rising 2.3%. NASDAQ’s rise was fueled by many of the technology stocks that saw a rise after being quite oversold.

Even though we ended yesterday in the green, we are still firmly in a bear market as the major indexes are still around 30% off from their previous highs.

The good news is that even in a bear market, traders can make a profit if they utilize the right strategy.

My PowerTrend system applies just as well in bearish markets. I shift my focus from bullish call options and call option spreads to bearish put options and put option spreads, but the underlying system remains the same.

Now, let’s beat the bear market and start making money!

Yesterday, we looked at a Daily Price Chart of Aflac, Inc. and noted that the stock had been making a series of lower lows and lower highs.

Today’s chart is for Cummins Inc. (NYSE: CMI).

Cummins Inc. designs, manufactures, distributes, and services diesel and natural gas engines, products worldwide. It operates through five segments: Engine, Distribution, Components, Power Systems, and New Power.

The current price of CMI is trading lower than it was exactly six months ago. The On Balance Volume (OBV) Chart is shown directly below the Daily Price Chart.

Here’s what you need to know about the OBV Line: it measures how much volume is either pushing the stock up, or down. Meaning, the volume of stock that’s being sold or bought.

Using a stock’s volume in this way can confirm a downtrend by reflecting that more people are selling the stock than are buying it. Take a look at the chart below…

Chart

We can see from the OBV chart shown above that the On Balance Volume Line for CMI is sloping down.

This indicates that the volume is slower on up-days and selling pressure is exceeding buying pressure.

Selling pressure must continue to exceed selling pressure in order to sustain a price downtrend. So, the OBV Line is a simple indicator to use that confirms the price downtrend and its sustainability.

We’ll be sure to keep following Cummins Inc, as the stock’s selling pressure exceeds its buying pressure and the price downtrend continues.

Additionally, we’d like to talk about how a previous Chart of the Day stock has done…

On March 16th, we highlighted Advance Auto Parts Inc. (NYSE: AAP), noting that AAP had been showing a PowerTrend ‘Sell’ signal since January.

Since March 16th, AAP shares have gone on to drop 24.38%.

If you had purchased the right put option contract, you would be up 180.82% in just four days’ time!

That’s the power of options.

Best Regards,

Chuck Hughes
Editor, Chart Of The Day

Chuck Hughes

Written By Chuck Hughes

Before Chuck Hughes won 10 Trading Championships, he was an accomplished Air Force pilot. In fact, he credits his success as a stock and options trader to his disciplined upbringing and career. When he was deciding between a career in the Navy and a career in the Air Force, the Navy told him he’d only have a 33% chance of flying jets. The Air Force gave him 100%. He liked those odds better. 35 years ago, Chuck had a wife, a young daughter, a son on the way, and a huge mortgage to afford. He didn’t want to give up on his lifelong dream and stop flying for a major commercial airline. He knew he needed to supplement his income during the 15 days a month he wasn’t flying. So he used his experience in discipline and math, and his understanding of finance and the stock markets (which he’d always been interested in,) and opened a $4,600 trading account. He made over $460,000 in profits his first two years of trading, and he hasn’t looked back since. When he was diagnosed with Meniere’s disease 15 years later, which commonly leads to vertigo…He knew his career as a pilot wouldn’t last much longer with those odds. But he didn’t have to scurry to find another gig, or panic about how his family would eat… He’d spent the last 15 years perfecting his system and raking in cash. As an options trader, Chuck does not let his emotions get in the way of his trading strategy. He adheres to disciplined and methodical options and stock trades. Because he respects the options game so highly, and understands the true freedom that financial solvency can bring, Chuck was able to design and refine his system and win those 10 Trading Championships. Put simply, Chuck Hughes’ trading strategies work, and in all types of market conditions. They’ve worked throughout the bull, bear, and flat markets America has seen in the last 30 years. Chuck Hughes has spent that time building a reputation as one of the most trustworthy options traders in the industry. His publishing group Legacy Publishing LLC was one of the few trading groups on the planet to have correctly predicted and profited from the 2008 financial crash .As a published author 16 times over, a 10-time Trading Championship winner, and an options-trading teacher for 25 years, he’s learned to trade and teach without an ego.