BigTrends

As you may know, we often consider the reaction to news events more important than the news itself.  This will likely be the case with the Congressional battle over Healthcare.  The House passed a bill late Sunday night, and the market futures have been down a varying degree since then.

With this legislative process now basically a "done deal" and the bill itself fairly watered-down compared to original proposals, it will be interesting to see the market reaction in the coming days.  Will we have a typical "sell the rumor" reaction, where the market is down this morning but then rallies back?  Or was Friday's move lower and today's pre-open weakness a signal that this overbought market is ready to pull back more substantially?  My market signals have been showing more of the latter, but let's let the market tell us in the coming days.

Well, that title is a bit facetious.  I believe the eyes of the world will be on us  this weekend a some historic legislation is about to be passed.  Yes, it effects everyone across the globe from a financial and economic perspective.  Frankly our markets have been distracted from anything from healthcare to march madness.  I can understand the angst over this huge bill, it's likely to be passed over the weekend.  If not, does the market rally?  Did it sell as a prelude?  But to assume the market has to correct for that reason alone is downright silly.  There are a MILLION reasons to sell, but only ONE reason to buy. 

This high reading occurred because the S&P closed up on 12 of the last 14 days, and the two declines were just 0.20 and 0.25 points. Quite an unusual win streak and one that suggests the market will be higher a month from today."

So we've had this very unusual run in the markets and many are saying we are "overbought" -- certainly we are, according to many oscillators -- but that doesn't mean we can't get more overbought.  In fact, many are waiting on healthy pullbacks to buy this market, which is making the pullbacks very shallow or not occurring at all.

Bottom line to me is, don't fight the tape and don't short an upward trend.

Just look around charts and you'll find a plethora of stocks that are moving higher from relatively nice bases.  Of course, not every setup is perfect, and some are better than others.  One that caught my eye recently was Buffalo Wild Wings (BWLD).  This had a big drop (see chart) and ran right back up, but the buy point was an advance over the solid resistance, which fell like a hot knife through butter.   Still a buy?  Test that lower trend line and then I would start a position.

Gold is starting to regain its shine and I am expecting a move back to 1200 soon.  The metal tested 1100 on multiple occasions of late and held its ground.  The dollar is elevated but that has not knocked down gold as much.  Room for the dollar and gold?  That's what the market is telling us.  Gold will be in breakout mode after it eclipses 1156, where a swift move higher is a strong probability.

Commodities are also on the radar.  Today many coal names were upped and given higher targets by UBS after having come down some 3-5% of late.  My favored area is the fertilizers, specifically POT, MOS, AGU.  Last week Potash RAISED their estimates significantly and today they are saying inventory levels are 16% below their 5 yr average.  The last time a similar condition existed potash prices went parabolic.  For price reference, POT is 50% below its alltime high, MOS is 70% below and AGU is 35% under its alltime high.  They are highly volatile momentum names, but the conditions are good right now for some robust gains over the next several months.

The Fed meeting just snuck up on us, did you know there was a one day session scheduled?  I don't expect much change from the last meeting, perhaps some discussion about the intermeeting discount rate hike, and I would not be surprised to see this moved higher once again.  Talk about the weaker jobs market and the effect on the economy will no doubt headline the discussion.  I'll be watching bonds and the short end of the curve for some clues.  The market is sanguine about rates currently, VIX settling around 18%.

One of the best patterns to play in a bull market is the cup/handle, coined appropriately by William O'Neil of IBD fame.  This chart pattern shows a big surge after a pause (cup) in the stock price then a rest on lower volume (handle), which tends to look like a coffee cup (hence the name).  This is a timeless pattern that has worked in every bull market.  Last week, I was scouring chart after chart and all I could find were these patterns.  I don't recall having seen so many setups since 2004, which turned out to be a pretty good year for stocks.  An example of a current cup/handle is below.

Ok, that title was a bit of a joke there.  Fertilizer stocks are on the move tonite with a big guide up from Potash, a favorite of ours.  We can look  to POT, MOS, AGU and IPI to lift higher on Friday and likely beyond.  The charts were setting up nicely too, and this will likely put these stocks in breakout mode.  We'll be looking for an opportunity for a trade here, taking advantage of the surprise and low volatility for an upside trade.

A technology company that was a "hot stock" of the 1990s is quietly breaking out to its highest levels in about 15 years.  The company is Sybase (SY).  One prominent commentator speculated that it would be a good fit for an acquisition by Hewlett-Packard (HPQ).

Taking a quick look at the fundamentals, trailing and forward P/E averages about in the 20 area, profit margins are close to 20% (healthy, as stocks in this sector usually are), quarterly revenues grew about 9%.  Debt is not a major issue and no dividends are paid.  Short interest is fairly high at about 13% of the float. 

But let's take a look at the charts, which tell the story of the stock in pictures:

The first chart is about 20 years of monthly data, on a monthly closing line basis.  You can see that the stock peaked out originally in the early-1990s, well before the "internet bubble" and the parabolic upmoves of many tech. stocks.   Of note on here to me is the heavy volume of the uptrend in recent years.  In addition, one could give upside targets as high as 70 just based on past data.

SY Monthly Chart


Breaking it down to a Weekly Basis, you can see that since bottoming in late-2008 (months before the March 2009 broad market bottom), SY shares have been in a sharp uptrend.  Pullbacks to the bottom of this range drawn by trendlines have proven to be good buying opportunities.

SY Weekly Chart


Now to the most relevant chart for options traders and swing traders, the Daily Chart.  You can see below that we had a breakout in recent days above the 45 level, which looks very significant.  The 44/45 area should contain any pullbacks.
 
SY Daily Chart



Bottom-Line:  I'm not convinced this is a great long-term fundamental buy, but the ideas about future growth and possible takeover are intriguing.  On a shorter-term basis, a pullback to 45/44 looks to be a very good entry point for a bullish trade.  First upside target would be 50.

Disclosure:  No current position in the stock or its options.

Lately we've been seeing good leadership in stocks, and yet the indices are just slowly moving forward.  This may be the best of all worlds, for the 'wall of worry' is up.  How so?  First, we've seen stocks breaking higher on lower volume.  Normally this would concern me, however the 'non believers' are out there.  Frustrated bunch, aren't they?  Retail has been strong of late but traders may fade the retail sales number due out on Friday.  Tech has been strong and financials are waking up.