Chemtura (CEM)

Company

"Chemtura Corporation is one of the largest publicly traded specialty chemicals companies in the United States and one of the largest producers and marketers of plastic additives in the world with 2005 pro forma revenues of $3.9 billion. We also are a leading supplier of pool and spa products, a top marketer of niche agricultural products, a leader in the petroleum additives market, and a top marketer and producer of urethane polymers. We manufacture and market products that make other products better in automotive, construction, packaging, agricultural, industrial and consumer applications." (company website)

Buy

31-Oct-06. When Chemtura broke out and peaked at $9.56 I guessed at what a reasonable pullback would be and put in an order to buy at $8.75. This morning, to my amazement, the order executed at $8.20. (A limit order always implies at the limit "or better.") I went scrambling to find out why and discovered this was another case (see also ENG) where company news sent the market into a spin.

Oct 30 (Reuters) - Chemtura Corp. on Monday said it sold its majority interest in Davis-Standard LLC polymer processing equipment joint venture to its partner Hamilton Robinson LLC for about $72 million in cash to focus on its core business. Chemtura also said it expects third-quarter and second half earnings to be "substantially" below its prior expectations, due to softness in crop in Latin America and a longer-than-expected lag between volume recapture and margin recovery. (Reporting by Neetha Mahadevan in Bangalore)
—Reuters

If I had been aware of this story I would have withdrawn my order. Now I'm stuck with it for at least a day (day-trading rules).

Price momentum (PPO) — was picking up sharply
Trend (ADX) — was strengthening rapidly
Money flow (CMF) — was a strong inflow
Relative strength (RSI) — was strong
Volume — was stable with higher than normal volume up-days

With earnings to be released later in the week, it is anybody's guess what will happen with this stock. Today's shock may have "priced in" whatever price damage is going to be done, and the worst is over. Or, it will turn out that what the company means by "substantially" is substantially different than the market's understanding of "substantially," and there will a big aftershock.

I think a pretty tight stop-loss is in order until after earnings are released.

Sell

Bottom line
18%

17-Nov-02. Although CEM was a long way from my sell-stop, I decided to pull the trigger anyway. It has had a solid three-week run of price increases after getting slammed at the beginning of the month. I fear it is losing steam: buying pressure (+DI) keeps rising, but trend strength (ADX) is weakening; volumes are falling off; and relative strength (RSI) looks like it is topping out at 70.

The uptrend still looks solid (see sidebar), so I expect to keep CEM on my list of "prospects" to buy again after a pullback.

It was time to take some profits.