BigTrends

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.

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.

A relatively quiet consumer products company that's been in business since 1916 has made new 10-year highs over the past week:  DelMonte Foods (DLM).  This week, DLM reached its highest level since 1999.

DLM is primarily in the food business, with its major divisions being edibles for Humans and Pets.  It looks like the Pet division is driving the recent growth, with such strong brand names such as Meow Mix, Kibbles n Bits, 9Lives, and Milk-Bone.  Its Human Food division includes brand names such as DelMonte and StarKist.

The earnings report last week is what's given the shares their most recent upward spike.  Quarterly revenues increased 7.5% and the company raised its yearly earnings target.  A quick look at the fundamentals shows reasonable current and forward P/E ratios in the 11 area, and decent profit margins for its sector in the 10% area.  Debt looks a little higher than I would like, and the dividend is below 1.5%.

It's likely that the Recession has caused many consumers to level down from the "ultra-premium" pet foods, yet they still want to give little Fido or Smokey a quality of food better than the bottom shelf.  This would seem to be a sweet spot for the Meow Mixes and Kibbles of the world.

Anyway, as usual the charts tell the story -- first look at this 10 year breakout:



In general, I utilize these long-term monthly charts to ascertain the big picture -- they're not quite as good for short-term timing.  but what we see here is a clear upside breakout, even above the trendline I've drawn in which pointed to 12.5 as being a key area.  On this chart the previous highs in the 16/17 area look very reachable and could be taken out en route to 20  ... but there certainly could be a pullback in the meantime, and it may take time for the final surge to develop.

Let's also take a look at a Weekly Chart that covers the massive moves in both directions from 2007 to the present:



You can see we've had a giant "V" shaped formation that bottomed in late-2008 during the market panic.  We recently surpassed this range, also in the 12.5 area.  What's impressive in this rally has been the big volume on the upside.  Additionally, we've just broken out of a consolidation range in the 10.5 to 12.5 area that held from September 2009 to March 2010.  This is certainly a bullish breakout.  But keep in mind that we've had a massive move from the 2008 low below 6 to the current prices.

Bottom Line:  DLM looks like a very good long-term Buy on a pullback to the 13/12.5 area.

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

Well here we are again ... the CBOE Volatility Index (VIX) has dropped down to the key 17.5 level, meanwhile the S&P 500 Index (SPX) has rallied again towards the 1,150 area.

Where have we seen this scenario before?  Well, it wasn't very long ago -- in January 2010, we tested these areas (see the following chart).  Last time around, we spent several days waffling around before a fairly big market reversal occurred.  This pushed the VIX from 17.5 all the way to the upper 20s, and the SPX dropped from 1,150 to around 1,050.

So, will history repeat itself this time with a market correction ... or are we going to breakthrough with continued upside in the SPX and decline in the VIX?  I would lean to the latter choice - why do I say this?  Well, first off the second test of key levels is often the point of breakthrough ... the market has shown resilience to push back up to here.  Secondly, we've again cleared a key Fibonacci level that I've discussed before around 1,121.  Additionally, the Daily Percent R on the SPX was over 99 on Friday, which is an extremely strong reading.  Also, there certainly is skepticism in the air ... yet we had one of the better economic reports in some time last week.

While I rely on various systemized signals for our Index Options Timer trades on (SPY) (QQQQ) and (IWM), which can go in either direction at any time, I would anticipate at this point that we will test 15 on the VIX before we again approach 30.

Take a look at the following chart, which overlays the Dow Jones Industrial Average (DJIA) (DIA) with the 1929 market crash and the 2008 market crash.  It shows the subsequent performance over the next 5/6 years.

What is interesting here is that 2009/2010 is thus far creating almost a mirror inverse pattern of what occurred following the 1929 Crash.  You can see that back then we had kind of a "false rally" which ultimately turned into a a 2 year strong bear market.

Conversely in 2009, we had a panic bottom in the markets, which has been followed by an uptrend.  If this historical inverse pattern continues (of course, there is no guarantee that history will continue to repeat in such a way), we are likely to have about another year's worth of upside to the DJIA.

Why do I say this?  Well, the bear market in 1930 lasted until 1932, at which time there was a markable trend shift to a sideways upward market that lasted for multiple years.  If you trace when the trend shift occurred into the current timeline, that points (purple arrow) to around May 2011 as the next major trend shift.

Something to keep an eye on -- historical comparisons are often needed when we come through outlier events such as we have experienced over the past 2 years.

The President of Toyota (TM) will be speaking before Congress today, and will surely take some "verbal lumps" from publicity-seeking politicians this week.  However, this may well mark the bottom TM shares, assuming the current mini-scandals are the last of the bad news in terms of major mechanical car problems.

This is a classic case of bad news taking a stock down, but the company being likely strong enough to survive and rebound.  It reminds a bit of the Audi problems in the 1980s, which of course were on a smaller scale -- but they blew over fairly quickly.  Toyota has built up a long-standing goodwill with customers around the world -- while this may have been mildly damaged, it can be regained by maintaining high quality standards and vigilance.

For all the talk of "Buy American", let's not forget that Toyota manufactures cars and trucks in states like Kentucky, Alabama, Texas, Indiana and West Virginia.  Many other foreign car makers also build a great many vehicles and parts in the USA, providing good jobs for Americans.  And these states are grateful for this employment ... as are their politicians.

While there certainly is risk in TM shares due to the overall market, the world economy, as well as the Auto Industry itself, I maintain that the "bad news" drop in the shares is just about over starting with today.

TM Daily Chart

Let's revisit the price performance of the major index ETFs for 2010 thus far.  We're looking at the S&P 500 (SPY) in green, Dow Jones Industrial Average (DIA) in red, Nasdaq 100 (QQQQ) in yellow, and Russell 2000 (IWM) in blue.

You can see on the following chart that the Russell 2000 as of today's close has separated a bit from the pack.  It is slightly up (basically even) for the calendar year thus far.  The S&P 500 and DJIA are down a bit over 1%, while the Nasdaq 100 is bringing up the rear, down around 3.5%.  This is a reversal from 2009, where the QQQQ had a much larger % gain for the year than the other 3 indices.



The Russell 2000 is designed to be a measure of small market capitalization stocks.  If you look at the Top 10 Holdings below (as of 12/31/2009), you can see that is a very diversified security, with only 3% of its assets in the Top 10 Stocks.  There are some well-known companies among its largest holdings (COMS) (ETFC) (HGSI) (TUP) among others.

Why are the QQQQs lagging this year?  Well, it comes down to the fact that 40% of its assets are basically in 4 stocks (AAPL) (GOOG) (MSFT) (QCOM).

What conclusion can one draw from this 2010 performance thus far?  Well, in general, strong performance by small-cap stocks (which tend to be considered "growth" stocks) bodes well for the markets as a whole.  Government stimulus efforts towards "small business sized" companies may play a role in this, as well.  Additionally, one should be aware that the "big 4" technology names above may NOT lead the market forward this year ... often times the previous leaders become laggards.

The relationships between the US Dollar, Gold, the Stock Market, and Bonds is a complex, inter-related one that changes over time.  However, there are noticeable trends and "push/pulls" that one can spot in a price performance chart.

Take a look at this following chart of the PowerShares US Dollar Index (UUP) and the SPDR Gold Trust (GLD):



What you can see clearly here is that the down move in the Dollar that began in late-2008 was in tandem with a big rise in Gold.  The Gold move peaked in early December of last year.  Since that time, the Dollar (represented by the UUP) has been on a steady uptrend versus its basket of world currencies (Euro, Yen, Pound, Canadian Dollar, Krona, Franc).  Meanwhile, GLD is heading lower.

The simple conclusion I draw from this chart is that continued strength in the UUP/Dollar will lead to further downside in GLD/Gold.  The relationship between the US Stock Market and the Dollar is not as strong currently in my analysis.

You may well think that the Dollar will eventually resume its downward slide, and Gold will have another big upleg.  But "don't fight the tape" as Jesse Livermore would say -- and currently the UUP is showing strong technicals.

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The CBOE Volatility Index (VIX) has long been utilized in a variety of manners for judging both investor sentiment, as well as market timing.  It can clearly shows times of both "panic" and "complacency" by the crowd, which is often late to the party and/or marks a turning point.

Take a look at this longer-term VIX Daily Chart below:




First thing that jumps out to me on this chart is the basic range on the VIX has been 20 to 30 over this time frame, with "outlier" range of 17.5 and 22.5.  Previously I have forecast that the VIX could reach as low as 15 in 2010, with 17.5 being a key level, but wasn't going to penetrate below 15 as an outlier, and I stick to that analysis.

There are several things one could see on this chart, such as short-term spikes in the VIX were often good entry points during market runup in 2009.  But there also is something interesting with the outlier range.  When the VIX consolidated in the 30/32.5 range in May/June 2009 (unable to breach above this area), it preceded a major upward leg in the S&P 500.  The VIX made lower lows through July as well, indicating the bear trend (rise in VIX) was drying up.

Recently we established a new bottom outlier range on the VIX, as we tested the 17.5/20 range repeatedly in December 2009/January 2010.  This was in effect a contrarian sell signal for the markets, and we have subsequently sold off.  Additionally, you can see that the VIX is making higher highs recently, indicating its strength (and actual volatility) has not abated.

Does this chart give me every answer as to where the market is headed?  Of course not, it is a snapshot and component of putting together a big-picture view.  But keep an eye peeled if we head back down into the 20/17.5 range (and even break down to 15), because that may well presage another sharp market correction.