The Short Case on Marsh & McLennan Companies

Marsh & McLennan Companies, Inc. (MMC) is a high probability trade with a well defined profit potential. The break below 28.82 is likely to thrust the stock down into the mid 26's. It is a high probability trade, now that the 28.82 strong support level has broken.

For the last 2 years MMC has been in a well-defined (but not steep) downtrend which started on Mar05 at 34.25. Every weekly high since then has been lower than the previous one so a downtrend in in effect.

On the weekly charts, starting on the high of Mar05 at 34.25, MMC had a weekly drop to the 26.67 level, a rally back up to 33.42, a drop to 24.00, and a rally back up to 32.43. It now looks evident that MMC is once again going into a valley period and that the break below 28.82 is likely to signal a move back down to at least the 26.67 level, if not lower.

On the daily charts this last Friday MMC tested the 50-day MA it broke-down-from two weeks ago and, after repeated attempts intra-day, failed to pierce through. It then proceeded to have a reversal day and came within 6 ticks of having a classic reversal day with higher highs, lower lows and a close below the previous day's low (missed it by 6 ticks).

Nonetheless it was a negative day as there was a reversal pattern. Subsequently there was follow through on Monday of this week to the weak close on Friday and the 28.82 level of support was broken. The break below 28.82 shows no visible chart support until 27.30-27.60 is reached. In addition, there is a gap area between 27.76 and 27.96 that will work as a magnet for traders to shoot for as gaps usually get filled at one time or another and traders often use that fact when the opportunity is close by.

In looking at the weekly charts the break of 28.82 also broke the 50 week MA and has now likely thrust the stock down toward the various weekly support levels (which are strong) found between 27.00-26.67.

The is one additional fact that might make this trade a little sweeter. Last August MMC broke down below those same support levels with a move down to 24.00 so it is possible that if the support levels between 26.67-27.00 break again that MMC would go lower and attempt to reach the 24.00 that was seen on this last valley.

A short position can be initiated today on a rally up to the 28.82-28.84, which would be considered a re-test of the support level which has now become resistance.

In looking for a move down to 27.00 and using a stop loss (close only) at 29.00 the risk/reward ratio would be almost 9-1. Now that the 28.82-28.84 has been broken and confirmed with two closes below, should MMC close above 28.84 it would negate the break of support. 29.00 stop close only seems like a good stop loss order.

My rating on the trade is an 8 (on a scale of 1-10 with the strongest probability rating being 10).

Disclosure: Author has a short position in MMC.

MMC 1-yr chart

Comments

[malight2002]

There not necessarily correct however, this writer does have a short positon in Marsh. Love, dad.