With the markets still recovering, traders and investors have difficulty finding stocks to invest in. The uncertainty stems from not being sure if the recovery is just a dead cat bounce or if the stock price will continue in a sideways trend. But what if I tell you there is a way to gauge if the stock's recovery already shows promise? Let me introduce the Ichimoku Kinko Hyo.
What is the Ichimoku Kinko Hyo?
The Ichimoku Kinko Hyo is a technical indicator that combines different technical strategies into one indicator. It provides information on potential support, resistance, and momentum at a glance. This article will only look at its trend-following component, the Kumo, sometimes called the Cloud.
The cloud comprises 2 components, the Senkou Span A (green line) and B (red line). The Senkou span A is calculated by adding the value of its 2 moving average components, Tenkan-sen and Kijun-sen, and dividing it by 2. Its Senkou Span B is the sum of the 52-period high and low divided by 2. Both components are then plotted 26 periods ahead.
The cloud signifies that if a stock trades above the cloud, it is trading bullishly, and the projection also shows any potential changes in the trend.
Now, let’s look at some dividend stocks that have started trading above the Kumo.
H.B. Fuller Company (FUL)
H.B. Fuller Company is a global expert formulator and manufacturer of adhesives, industrial sealants, industrial coatings, and specialty chemical products in two dozen markets and has existed for 130 years. The company operates in four segments:
- Hygiene
- Health and Consumable Adhesives
- Engineering Adhesives
- Construction Adhesives
FUL’s products include assembly, packaging, health and beauty, transportation, electronics, medical, heavy machinery, adhesives, sealants, mortars, etc.
The company is currently offering a 1.16% dividend yield. But don’t fret, the company has been constantly increasing its dividend payments for 54 years, making it part of the elite Dividend Kings category.
Analyst Ratings
Analysts rate FUL as a “Moderate Buy” based on 5 Strong buys and 1 Strong sell recommendation. The mean target price is $82.50, with a high price of $107.00, an upside of 46.51%.
Where are we now?
HB broke out of the Kumo and is approaching its resistance around the $74.00 area. Its Kumo is projecting an uptrend and may allow investors to buy into FUL once their price corrects and catches up with Kumo.
Tenant Company (TNC)
Tenant Company is one of the leaders in the cleaning industry that designs, manufactures, and markets products for the industry. The company's products include:
- Detergent-free and other sustainable cleaning technologies.
- Floor maintenance and cleaning equipment.
- Equipment maintenance and repair service.
These products are widely used in public venues, factories, warehouses, office buildings, and other industrial areas. TNC’s global operations and manufacturing produce well-known brands like Tennant, IRIS, Alfa Uma Empresa Tennant, and Nobles.
TNC is currently paying a dividend of 1.33%, and the company increased it's dividend for the 50th year, making it a part of the Dividend Kings.
Analyst Ratings
Only 1 analyst currently covers TNC and recommends it as a “Strong Buy.” The target price is $100.00, an upside of 23.84%.
Is a follow-through coming?
TNC’s breakout has left the stock trading in a tightening range and forming a rising wedge pattern. While the Kumo still shows bullish signs, the tightening of the cloud and the wedge tells us that the price can go either way. Investors may wait for the completion of the pattern to make an entry.
Albemarle Corp (ALB)
Albemarle Corporation is a specialty chemicals company that develops and manufacturers chemicals and operates in three key segments:
- Energy Storage
- Specialties
- Ketjen
ALB’s energy storage business fuels help electric vehicles' efficiency using renewable energy through grid storage. Its Ketjen business helps optimize the use of natural resources to create more environmentally friendly fuels. The specialties segment helps prevent fires in electronic equipment, reduce power plant emissions, and rubber tire fuel efficiency.
The company pays a paltry a 0.67% dividend yield, however, they've been constantly increasing its dividend payouts for 30 years, making it a part of the Dividend Aristocrats category.
Analyst Ratings
Analysts rate ALB as a “Strong Buy” based on 13 Stong buys, 1 Moderate buy, 3 Holds, and 1 Moderate sell. The mean target is $256.89, and a high target price of $341.00, an upside of 46.65%.
Is it time to buy?
ALB’s break above the Kumo and retest have shown strong support around the $220.00 area. The expansion of the cloud shows that we can expect bullishness in ALB. Investors have to take note of the $250.00 resistance area. We may be looking at an extended bull run once the price breaks above that level.
Final Thoughts
Investing in trending stocks will never go out of style. It is one of the most used strategies by traders and investors, and the Kumo helps identify which ones to choose. However, it should not be used as a sole buy signal; it is a tool that helps you understand the trend and helps provide context on the stock's potential direction.
On the date of publication, Rick Orford did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
