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Sealed Air Corporation (NYSE: SEE), the New Jersey-based manufacturer of food packaging materials and equipment, continues to exhibit relative strength versus the broader market, despite the recent uptick in volatility.
The stock had a massive but orderly rally off its summer 2012 lows on unabated strength, but then spent the better part of the past four months in a notable bullish consolidation phase. SEE now looks to be coiling up, and if it gets enough momentum to break past recent resistance, it might also break past a multi-year resistance line, thus making the current juncture important in multiple time frames.
On the weekly chart, we see that the stock plummeted from a high near $33.90 in May 2007 to a low below the $10 mark in early 2009. The ensuing reaction rally measured more than 175% over the course of just 24 months.
Gravity eventually dawned on the stock in February 2011, which led to another big drop. The February 2011 top, however, is important from a multi-year perspective. It serves as the second point on a downtrend line drawn from the 2007 top.
SEE finally completed this next leg down in August 2012, which notably served as a higher low versus the 2009 lows. What followed was another sharp, roughly 90% rally over the course of seven months that came to a halt in March of this year after the stock displayed a month-long vertical leap around mid-February.
In hindsight, the March highs also coincided with the 2007 downtrend line, currently around the $24.90 mark, which increases the importance of this line from a multi-year perspective.
Moving on to the daily chart below, note that since reaching a high of $25.08 on March 15, the stock spent the past three and a half months consolidating the big move up from August 2012 to that high. After a quick 16% correction into mid-April, SEE had retraced almost 23.6%, a Fibonacci number.
From there, as fund managers began to chase the market higher, they also snapped up shares of SEE, and by early June, this brought the stock right back near the March highs. Since early June, the stock has made three attempts (June 4, June 18, and July 1) at breaking past the mid-March highs.
There are two things that make me think an eventual breakout is just around the corner:
1. In late June, the stock had a mini pullback, which quickly found good support at the 50% retracement line of the April to early June rally. This confirmed yet another higher low on the daily chart, which increases the odds of a higher high in the near future. A higher high would be accomplished on any daily close above the March highs, or around $25.10.
2. Over the past three trading days, the stock has consolidated right at the resistance line of recent months. Such a consolidation right below the highs, after multiple tries to overcome them, qualifies as churning below resistance and is a bullish sign.
Recommended Trade Setup:
-- Buy SEE on a daily close at or above $25.10-- Set stop-loss at $24.20-- Set initial price target at $26.50 for a potential 6% gain in 4-8 weeks
As a die-hard value investor, I struggled with its valuation in the past, but now I'm ready to pull the trigger.
Following a breakdown, there are simply too many bearish technicals on its chart to ignore.
As bearish trends take hold, this pick has become an overpriced company in a struggling sector.