Bleeding Paper Cut

I last traded Domtar (UFS) in April with a quick 3-day trade shorting it from 101 to 95.38 for a 5.1% gain. I haven’t checked it since then, but now that it’s popped up on a scan it has my attention again.

Domtar (UFS) Daily Chart - June 6, 2014

Domtar (UFS) Daily Chart – June 6, 2014

Not much pep exhibited in UFS during last week’s market rally. Price has been dancing on the 200 SMA for the past three weeks accompanied by steady distribution before finally closing below it this past Friday for the first time since last September. This type of weakness justifies consideration in taking a short position.

From Friday’s 90.83 close, a stop over the immediate trading range above 93.50 risks just under 3%. For a little extra cushion a stop over the 50 SMA at 96.82 covers both that key moving average as well as the next higher trading range peak price of 96.49 charted on May 14th. A stop there risks 6.6%.

Diligence in employing a stop seems mandatory as UFS can be prone to swift price moves on volume surges as seen in late January of this year.

Other factors to consider include Domtar’s forthcoming 2-for-1 stock split and early July 1.6% ex-dividend date. The next EPS date is not expected until late July.

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