Honeywell Showing Strength In Tight Bullish Channel

The second and third quarters of 2016 were not kind to Honeywell (NYSE: HON).  The stock spent much of those two quarters in a horizontal pattern before an 8-point gap wiped out nearly 50% of the entire year's gains.  That drop was very short-lived, however, and anyone that went long on the bounce off long-term support two-days later were well rewarded.  A tight bullish channel paved the way for the remainder of 2016 and into 2017, while Honeywell reclaimed all of the territory lost in early October.

HON Daily Chart

To be sure, the election of a potentially hawkish and definitely business-friendly US president helped this stock.  The selection of a "tough talk" Secretary of Defense helped as well, giving a solid boost to the prospects for Honeywell's defense contracts.  With this backdrop, CFO Tom Szlosek helped the company's cause in mid-December, promising very strong cost-cutting measures and projected a very rosy outlook for growth in segments not related to Defense. 

There's very little indication that the climb is being exhausted.  Volume continues to be consistent, and On Balance Volume shows an extremely strong upward slope that is indicative of accumulation.  The RSI(9) Oscillator on the daily is confirming the overall price action, and the Oscillator is nowhere near its extremes to the high side. 

From an Elliott Wave perspective, the stock is in a Wave-(iv) sub-wave at the moment, and there's at least one more major impulse wave to go in the short-term pattern before we reach the top of Wave-3 on the weekly and monthly charts. 

HON Weekly Chart

The strong bullish channel pattern is evident on the weekly chart as well, and that pattern has been in play since October 2011.  The highest order Elliot Waves were determined from an analysis of the monthly chart and are shown in bold black here.  Now, multiple conflicting wave counts are possible, especially as we hit mid-2016, however in any of those counts the wave evidence suggests more room to the upside.

It's important to note the bearish divergence in the RSI(9) on the weekly chart, and we're seeing a downward trend in volume as well.  On Balance Volume on the weekly continues to rise, however so for now it appears demand remains strong.  The slope of the SMA(200) is very healthy and has been consistent since mid-2012.

The trade we see on this chart is to the long side.  With a stop just below the channel support line, I'd prefer to catch a pullback to either the EMA(10) or to that trend line, however I'm willing to enter long from here if I see a sign of strength coming off the open.  While there's a bit of resistance at $120, it's extremely week and not likely to hold once the next impulse starts.  That's a wave we'll try to catch early.

Happy Trading.