What Are Some Big Individual Stocks Telling Us?

By: J.D. Rosendahl | Tue, Dec 15, 2009
Print Email

There are some pretty staunch bears that have been trampled this year. One of the re-occurring themes I see with the Uber-Bears is they cling to economically fundamental reasons (most of which I agree with long term) why the stock market should top and go down, when the technical analysis has suggested otherwise, even if it's just a bear market rally, which is what I believe it is.

The bears have been wrong the entire way up because they have lost focus on the technical analysis to some degree. Some have been calling every new high as the market top. Where they have really failed during this market rally is that individual stocks have not reflected topping patterns or technical analysis that would support calling tops on the stock market.

That being said, we are starting to see some major names rise into price levels (resistance) where we should expect at the least, a correction in price or time. Below are some stocks I've been watching recently because all of them are testing major prior peaks after extended, very extended moves higher, which is a natural place and time to expect a fade.

Note: For the record I have no position on any of the stocks identified in this article. As someone who trades quite often that might change in the future. Nor am I recommending anyone take a position in any of these names. I also believe all of the companies are high quality well managed companies. There is still time and room for all of these to work a little higher or poke their head above resistance.

2 of the above (KO and UTX) are DOW components. If the stock markets are going to roll over in the near future, we should expect these components to fail into resistance and reverse. If the markets are going to go significantly higher, than one of two things are going to have to happen:

  1. These components will have to break above resistance and keep trucking.

  2. And/or, lesser performing components will need to play catch up as the above stall.

If we are talking market components as it relates to the performance of the Dow, then we need to look at the Sugar Daddy component, IBM, which is below.

IBM is in an interesting spot, it has broken above its prior peak, which is viewed as bullish for now. That being said, it could easily be a head fake and a break down below the prior peak and it's up trend line would be considered a bearish reversal. And, there's little margin currently for error.

I always find it important to keep an eye on IBM because it's such a huge weighting in the DOW, its price moves are far more important on a relative basis compared to the other components within the DOW.

If the big names do roll over, then I would expect the less quality companies to have far more corrective moves down, as the quality big names tend to hold up better as market favorites.

My personal take is that the markets have had a big run, and the risk to chase the markets higher is ill-advised on a risk basis. If you are a manager of risk in implementing your own money decisions, the above charts suggest now is not the best time to chase the markets. To me, it actually suggests one implement a protection of gains strategy. Maybe using stops to protect gains or some kind of disciplined sell strategy.

Hope all is well.



Author: J.D. Rosendahl

J.D. Rosendahl

J.D. Rosendahl is not a registered advisor and does not give investment advice. His comments are an expression of opinion only and should not be construed in any manner whatsoever as recommendations to buy or sell a stock, option, future, bond, commodity or any other financial instrument at any time. While he believes his statements to be true, they always depend on the reliability of his own credible sources. Of course, we recommend that you consult with a qualified investment advisor, one licensed by appropriate regulatory agencies in your legal jurisdiction, before making any investment decisions, and barring that, we encourage you confirm the facts on your own before making important investment commitments.

Copyright © 2008-2011 J.D. Rosendahl

All Images, XHTML Renderings, and Source Code Copyright © Safehaven.com