A building block for your portfolio – Chicago Bridge & Iron

• Posted by Greg Harmon
• on August 10th, 2015

You have likely built this bridge out of blocks or something like it in your childhood. It seems simple enough but analyzing the forces at work can get complex. It does not have to be that complex when adding stocks to build your portfolio. One I have been looking at is Chicago Bridge & Iron ($CBI).

This stock peaked at 89.22 in April 2014 and then fell 64% over the next 10 months. It has been generally moving higher since February, but in the chart below, it started a pullback in May. Is this the next leg lower or just a healthy pause to digest the move higher? I suggest the latter.

The main reasons for this view are seen in the chart of the stock price. During the move lower the price was below both the 50 and 200 day SMA’s nearly the entire trip. Now the price is above both, in a short term consolidation. The momentum indicators are also supportive of continued upside price action. The RSI is in the bullish zone and rising, while the MACD is positive and rising. The final piece is the short term pullback and bounce creates an AB=CD pattern. This targets a move higher to near 71.25. The stock also gives a natural stop loss level below the flag, for a high reward to risk ratio.

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