January 19th, 2006

NASDAQ and Sears Holding (SHLD)

Our parents and grandparents who lived through the depression, always lectured us about getting good jobs and holding on to them at all cost. They admired long job tenures and seniority and they looked with disdain at “job hopping”. Many of us operate with a parallel, yet different, paradigm concerning the stock market, the one that says that after a good move up, the stock market is bound to imminently crash.

As we approach what appears to be a flattening or down market after a nearly 3 year run up, those who are caught in this cycle of fear are getting a little skittish. (Interestingly enough, those same people who look to the Tech Bubble crash as the model for future stock market behavior are also usually the ones who won’t give more than a passing glance at a stock chart with more than a few weeks of prices and volumes.)

But I have another reason for not having written recently. Like everyone else, I’m getting a bit gun-shy about this market. Yes, stocks continue to break out and I continue to swap out of those stocks with poor buy execution on my part (specifically, DJO) or whose breakouts have failed to follow-through and move into those new breakouts. For example, today I sold positions in:

  • AMHC
  • AZN
  • DJO
  • MTLG

I swapped them for new breakthroughs with positions in:

  • DOX
  • IPAS
  • SHLM
  • STKL
  • TRAD

But the question haunting me was whether I shouldn’t have just sold and built up my cash reserves for a more accommodating market.

There are a host of fundamental (economic and financial) reasons for thinking that the market is over valued today, at this level. Yet, from a technical perspective, although it’s a reversal, as might be expected after such a strong opening year, I wouldn’t call it a reversal yet. It’s interesting how little we’ve heard recently about the old saying “As goes the first week, so goes January; as goes January, so goes the year.” Talking heads couldn’t stop shouting that line (as if it were exclusively their new found discovery) between Christmas and New Years. And yet, as the market was racking up 6 out of 7 great advances during those first trading days …. we heard nothing about it.

Here’s another fact that I haven’t heard mentioned: the NASDAQ, closing today at 2279, has almost exactly doubled from its low October, 2002 low of 1135! Rather than bring out the champagne and celebrating, it’s all about how poorly the results were from AAPL, EBAY and INTC. It’s been a while since we’ve taken a look at the NASDAQ index:

That resistance trendline goes back to 2001 and is the ceiling which the index has to solidly penetrate before we can claim full recovery from the Tech Bubble bursting. We won’t know for sure what the direction actually will be until we see how successful that trendline acts as a support in the 2200-2215 range.

You might want to take a look at Sears Holding (SHLD). As we all remember, this has been a favorite of Jim Cramer almost from his show’s beginning. According to the bulletin board CramersMadMoney.com, Cramer mentioned either the stock or Eddie Lampert, Cramer’s “buddy”, college roommate and CEO of the company 30 times, the latest being just this past January 10 (for a complete list, click on the link above and a search will produce recaps of each show on which it was mentioned).

I find the chart interesting and intriguing:

While I wouldn’t recommend purchasing the stock now, it’s worthy of adding to your price trigger watchlist. At the beginning of May, 2003, SHLD could be bought at 12. Over the next 26 months, Sears Holding went almost straight up, with only three consolidations to a peak of 163.5. It retreated from that peak and, since mid-September has been consolidating in within a narrow band between 114 and 126. If it were ever to break through the upper resistance level trendline at 127, SHLD could make an assault on its previous high of 163 and continue, with a favorable backwind of a good market, continue to new high territory.

The reservation is that SHLD may, actually, penetrate the lower boundary of the range and retrace another portion of it’s earlier ascent. The fundamentals are conflicted. Yes, Sears Holdings is sitting on “valuable store sites property” and yes, “Eddie Lampert is a business genius”. But, according to a January 6 NYTimes article entitled “Retailers Find Little to Cheer”,

“Sears Holding, the struggling combination of Sears and K-Mart, failed to find
its footing over the holidays, with December sales sliding 11.9 percent. K-Mart
delivered a 1 percent sales increase after years of falling sales, suggesting
the bulk of the company’s troubles rests with Sears. In a statement, Sears
Holding blamed a ”weaker-than-anticipated customer response to fashion
offerings.”

So let’s put our money to work elsewhere in the meanwhile while we wait for a breakout, either way.

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