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Unusual Pattern of the Day: Clorox (CLX)

Unusual Pattern of the Day: Clorox (CLX)

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  • One of the top trends of 2020 involved the increased use of bleach and other chemicals to destroy viruses and germs. The big winner from this trade has been Clorox (CLX), which still struggles with keeping its products on the shelves at stores. Shares are up 42 percent in the past year.

    However, shares have been in a downtrend for two months. And a recent pattern this week, a shooting star, suggest more downside ahead. That’s because the sign is a bearish one, that traders are unable to get shares to move higher.

    Looking at the chart for the past few weeks, there also appears to be a head and shoulders pattern emerging in shares as well. That suggests that the cleaning supply company will trade down for the next few weeks or even months, as the valuation drops to a more reasonable level.

    Action to take: The February 2021 $190 puts are reasonably priced around $7.75. And they stand a good chance of moving in-the-money on a further drop in shares. This option should give traders a mid-double-digit profit from a low double-digit decline, making for a great return relative to the risk.

    The stock’s 200-day moving average is just under $200, so traders may want to look to take profits there, as value investors may use that price point to start buying shares.

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