March 2nd, 2009

Another Oasis in the Desert: MA, V and IBM

Having been away from the market for a couple of days allowed my native optimism to come to the fore again. Rather than continuing to see the slow drip-drip erosion in the underlying support of the market indexes, I happened to come across several stocks with similar looking charts that have been working better than the overall market. I’m not sure that means that they will soon succumb with other stocks or, instead, are indicative of the long-awaited bounce for the majority of other stocks.

These stocks have the following characteristics in common:

  • All seem to be forming head-and-shoulder, double- or triple-bottom reversal patterns where the necklines extend back five months to early October or more
  • The price of each are above both their 60- and 90-day moving averages
  • The 60-day has crossed above the 90-day moving average
  • Both the 60-day and 90-day have both turned or are close to turning the corner and are starting to move up.

The stocks are in a number of different Industry Groups but the ones I’d like for you to take a look at are:

  • MA and V: We all know these are competitors and heavily dependent on the financial markets, the economy and consumers. MA has been the more volatile but both seem to be now making a bottom.
    • IBM is unusual because it has both interesting short- and long-term charts. Like the credit card processors above, IBM seems to be in the process of forming a head-and-shoulders bottom reversal pattern.

      But the longer-term chart for IBM makes the possibilities even more compelling.

      IBM is struggling to stay above the bottom support trendline of a horizontal channel that actually began at the beginning of the Tech Bubble Crash in 1999. It pivoted off that support line four times in the past (if you permit the bottom of 2002 when it temporarily broke through that line). It could bounce here again but there’s no way to know whether or when it will move as high as the upper resistance trendline at around 130. In the past, it took 2 years for IBM to make that climb; this time it might take even longer.

I feel somewhat like the traveler stranded in the dessert; everywhere I look I see oasis. A couple of weeks ago it was the shippers and heavy construction stocks, before that it was the steel stocks and before that it was a few healthcare stocks. Many may soon begin to agree, they’re only mirages and there’s no relief in site. Others may say (and pardon my mixing metaphors), “where there’s smoke there’s fire.” As an optimist, I’ll take smoke anytime over death in the desert.

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