Dow Chemical Co (NYSE:DOW) enjoyed an excellent rally in the last few years as it rallied to $55 levels in 2014 from the 2011 bottom around $20. Now the stock is facing a bit of supply pressure from the higher levels and a lot of volatility has been introduced to the price action too. The first day of the week saw the stock opening with a gap up but unable to sustain the higher levels, though not losing all the gains, a typical sign of the said volatility seen in the larger timeframes too.
Generally, the corporate steps of Dow Chemical Co (NYSE:DOW) have been taken in a positive way by the markets and the last announcement of spinning off its major portion of chlor-alkali and downstream derivatives business was no exception. This separated part will be merged with Olin, creating not only a market leader worth $7 billion but the transaction will have a tax efficient consideration of $5 billion too. For the Dow shareholders and the company, the taxable equivalent value will be $8 billion. The result will be Dow receives a lot of cash along with 50.5% stake in Olin.
The analysts are enthusiastic about the deal. Jim Cramer sees the stock doubling in the next two years and the positive sentiment is shared by Citigroup too. The company has been selling low margin assets and generating cash from divestments with a target of $8.5 billion for the year in mind.
Technically, the band of $55-$57 will be a big challenge for the stock as a lot of supply can keep coming from those levels. As seen from the chart, the long term upside depends on the price action around $40-$42. A break below $40 can seriously endanger the bullish view. Till then, the investors can accumulate the stock near $42-$45 with a stop loss below $40.