Dover Corporation (DOV) is an $11 billion industrial company that currently yields 2.2%. DOV made it made its high for 2011 in July at $70.15 before dropping 28% to low just above $50 in early August. Nine days later, these lows were slightly broken when DOV made a marginal new low at $49.91. The rally from these lows stalled at $58.81 before the selling resumed in September.
On October 4, DOV hit a low of $43.64 but closed the day at $47.48, which was a pretty impressive reversal. Volume in October was lower than in August and declined further as the October lows were forming, line d.
DOV peaked at $58.89 in late October before again dropping back to the $50 level just before Thanksgiving. This has been labeled as the right shoulder (RS) of a potential reverse head-and-shoulders bottom formation. The volume spiked on November 28 after the right shoulder low, which was a positive sign.
In order to complete the reverse head-and-shoulders bottom formation, DOV needs a decisive close above the neckline, which is currently just above $60.
The potential upside target if this reverse H&S bottom formation is completed is roughly at $75.51. This is calculated by taking the difference between the neckline when the head was being formed at $50.14 and subtracting $43.64 from it. This gives a difference of $15.50, which is added to the breakout level at $60.01 to get the upside target.
It is also important to note that the chart resistance connecting the February and July highs is currently at $73.80, which could also be a significant barrier.
So how can we trade this? With a $60 stock, I would look for close well above the neckline—let’s say at $60.60—to confirm the reverse head-and-shoulders bottom formation. I would then be looking to buy roughly between $59.90 and $60.25 with a stop under $54.67, which was the December 14 low.
If this position is established, I would look to raise the stop to breakeven on a move above $65 and sell half the position at $73.34 or better. If half of the position is sold, raise the stop further to $60.80 on the remaining position.
A drop below $55 per share would be the first sign that this was not a reverse head-and-shoulders bottom formation. A decline below the right shoulder (RS) level of $50 29 would be negative.