February 21st 2008
The Market Knows Something I Don’t
Seems like countless blogs are tracking the symmetrical triangle that has formed. I did a quick scan of the Dow 30 components and it’s interesting to see the bullish patterns forming in these stocks.
CAT
DIS
JNJ
MCD
MMM
I’m seeing cups, double bottoms, and ascending triangles. What’s so peculiar is these stocks should get crushed in a recessionary environment.
I’m not bullish, but I may have to swallow my bias if some of these stocks begin to break out. I guess that’s why I trade technicals. My best trades sometimes defy fundamental logic.
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5 Comments »
reno on 21 Feb 2008 at 5:06 am #
“My best trades sometimes defy fundamental logic.”
I’ve found that to be true on ocassions also. It’s a good reminder that the market is not always rational, or at least rational the way you think it should be.
Options Strategery on 21 Feb 2008 at 3:06 pm #
First of all, JNJ should not get crushed by a recession. Big pharma is the classic defensive play and I am surprised that JNJ is 10% off its highs. With the recent acquistion of PFE consumer health care, they have a cash flow machine. At these prices, it’s a ridiculous value.
I don’t know about the others but I will venture some guesses.
DIS is seeing some interest after the strong numbers from theme parks (due to weak dollar) and maybe the end of the writers’ strike will help ABC.
MCD is a middle of the road play. They have good international growth. They are going to suffer from decreasing margins due to food inflation (I am sure their hedges will run out at some point and it is hard to make a dollar menu into a $1.50 menu.) The theory is that food inflation will hurt DRI more and force the consumer to trade down to MCD.
Not sure about MMM and CAT but there is a lot of talk in the media about buying large cap companies with international exposure. I personally prefer the GE infrastructure business over the CAT/MMM industrial but all pretty similar.
What’s your take? Why do you think they will go down? P/E are nearing bottoms.
thewild1 on 21 Feb 2008 at 5:06 pm #
I personally own cat since 62 level, I have cut some of my position, but I think it still has room to go up. It might come down to 70 first, but I don’t see why it can’t get to 75.
Jonathan on 21 Feb 2008 at 5:56 pm #
@reno. My sentiments exactly
@Options Strategery. Those are some great ideas. In retrospect, I think MMM and CAT could certainly benefit from a weak dollar and the robust Chinese and Indian economies.
@thewild1. I would agree with you, I think 75 is a good target.
Jonathan on 21 Feb 2008 at 6:07 pm #
@OS. I reread your comment. I don’t think they will do down. They’re forming some very bullish patterns. I don’t think a recessionary economy supports higher prices for these stocks so I was kind of at a loss as to why their stock prices look like they will move higher.