Breakdown in Rockwell $ROK Stock Could Make Traders 20%

Rockwell Automation (ROK) — This manufacturer and developer of equipment, software and engineering solutions for factories and process automation has had a steady record of growth. While analysts forecast earnings will increase 7.5% in fiscal 2015 (ended in September) to $6.63 per share, they estimate revenue will decline 3.5% to $6.4 billion. The company is scheduled to report in mid-November.

Rockwell Automation has seen a rise in factory utilization rates, but this has been offset by currency difficulties and problems with the European economy. Spending on new product development could also limit profits.

And S&P Capital IQ says that although demand for automation products is likely to increase over the next 12 months, its analysts feel this is already discounted into the share price.

The chart is bearish with a death cross at about $115, strong negative volume building, a sell signal from the internal MACD indicator and a sharp intermediate downtrend line.

It is however possible that ROK stock could have a recovery bounce to the intermediate resistance line at $106. Therefore, my recommendation is to either sell shares short on a rally to $106 or on a break below $102. My downside target for this short sale is $85 for a potential gain of 17% to 20% depending on your entry point.

As with all short sales, check with your broker for any restrictions. And be aware that if you hold shares short through the ex-dividend date in mid-November you will have to pay the owner the 65 cents per share due.