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Sherwin-Williams Uptrend May Be Over

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Sherwin-Williams Co. (SHW) hit a 6-week low in early trading on Thursday after a Q3 profit warning and JPMorgan downgrade. The paint and coating giant has been one of the year’s top SP-500 performers, benefiting from a booming housing market as corporations adopt rules that allow many employees to work remotely. The phenomenon has dovetailed with nearly ideal demographics, with the Millennial generation rapidly entering their nestbuilding years.

Persistent Shortages Undermining Demand

Demand for coating materials remains highly robust across architectural, industrial, and residential building markets but raw material shortages are continuing to impact rollouts schedules and home availability. Analysts and industry insiders expected those shortages to ease as the year progressed, but the Delta variant has thrown an unexpected curve ball, with constraints now expected to persist well into 2022.

Chairman, President and CEO John G. Morikis lowered Q3 sales guidance on Wednesday, noting that “raw material availability negatively impacted consolidated sales by approximately 3.5% in our second quarter, and we previously communicated that we anticipated less of an impact in the third quarter. We are now expecting raw material availability, including the unfavorable impact of Hurricane Ida, to negatively impact our third quarter consolidated sales by a high-single digit percentage.”

Wall Street and Technical Outlook

Wall Street consensus yields an ‘Overweight’ rating based upon 14 ‘Buy’, 2 ‘Overweight’, 11 ‘Hold’, and 1 ‘Sell’ recommendation. The stock has gained more than 34% in the last six months, forcing many analysts to readjust their ratings. Price targets currently range from a low of $278 to a Street-high $345 while Sherwin-Williams opened the session about $26 below the median $320 target. Current pricing looks fairly valued, given these targets and this week’s warning.

Sherwin-Williams topped out near 200 in November 2019 and fell to a three-year low during March 2020’s pandemic decline. The subsequent uptick reached the prior peak in June, ahead of a July cup and handle breakout that attracted intense buying interest. The graceful uptrend since that time posted an all-time high at 310.43 last week, ahead of a pullback that’s now testing the 50-day moving average and August breakout above the May high at 293.05. Weekly Stochastic has rolled into a sell cycle at the same time, favoring a breakdown and decline toward 260.

For a look at all this week’s economic events, check out our economic calendar.

Disclosure: the author held no positions in aforementioned securities at the time of publication.

This article was originally posted on FX Empire