Almost two weeks of consolidation around 1400 followed by a break out to multi-year highs on Thursday with some follow through on Friday. So what is next for the market? One can certainly keep playing it from the short side, although there is no technical reasoning for such a tactic at this time. The better strategy may be to just sit back and enjoy the bull run until it ends. But it may be prudent to keep moving up your sell stops to lock-in the hard fought gains. One thing is for sure, the miniscule ranges of the last few weeks will not last forever. We are well aware that when there are increases in volatility (or trading ranges) it is likely to occur on the downside.
For now, there are only a few reference points on the upside. Friday's high (1416.75) and the January 2, 2008, high (1418.50) are the only levels standing between the close (1415.25) and the November 30, 2007, close (1429.75). Above that level, the market re-enters the vacuum area from the meltdown in late 2007 all the way up to 1500. For those with a finger on the panic button, you have to at least wait for the 1400 level to be taken out on a closing basis.
It took a few months, but Apple (AAPL) made a new all time high on Friday (648.19) and closed just below it at 648.11. The earnings miss from last quarter is a distant memory and the anticipation of new products and a possible stock split has sent AAPL into orbit. The only resistance for AAPL is Friday's high (which was already exceeded in the after hours session on Friday night with a 649.10 high). For those looking for an exit strategy in AAPL, wait for AAPL to make a series of lows in one particular area and for a break below that level. For example, if AAPL trades down to the 639 area on Monday (which does not appear likely) and bounces, use that area as a possible exit point for the remainder of the week.
So when is the last time Exxon-Mobil (XOM) traded in a little more than a one point range for an entire week? Not even a numbers-geek like me has the answer. Last week's range from 87.77-88.91 provides for some excellent trading parameters for the next few sessions. In fact, the four consecutive lows (Monday-Thursday) from 87.77-87.96 will provide monster support. Traders looking to short XOM would be advised to hold off until that level is breached. On the upside, the High Frequency Traders are feasting on the institutional sellers at 89 and will not go away any time soon. Above that level, the next major resistance point for XOM will be the July 2nd 2008 high of 89.63.
International Business Machines (IBM) is once again back over 200, closing at 201.22. It took a while to chew through the institutional sellers at 200, but with the overall market momentum on Thursday, IBM was able to take it out with ease. Friday's high (202) will provide minor resistance, along with the May 10 high (203.35). However, there is no major resistance in IBM until the May 7 high of 204.77. On the downside, there is minor support at Friday's low (200.66). More importantly, the five consecutive lows from 197.72-198.16 (let's call it 198), will be major support and a key area for any trader looking to lock-in gains from the 20 point rally since mid-July.
Microsoft (MSFT) finally realized it was fourth largest component in the Big 10 and needed to partake in the rally. Now it is approaching some major resistance at the 31 level. Not only did that level cap the rally in late June, but it also capped the rally in mid-July after its latest earnings announcement. With a close of 30.90 and a double-top from Thursday (30.94) and Friday (30.92), MSFT will not have far to travel to bust through 31. Above that level, the next major resistance level is not until the May 11 high (31.54). On a pullback, minor support can be found at Friday's low (30.59) and major support can be found at Thursday's low (30.26).
Crazy consolidation in General Electric (GE). For the last 11 trading sessions, GE has been range bound between 20.77-21.19. After making a new 52 week high on August 7 (21.19), GE has been in its typical stall pattern. For now, owners of this issue must be content with GE's 3.24% dividend yield, with little or no hope of capital appreciation. There is simply too many large institutional sell orders, coupled with the HFT crowd surrounding those levels, for GE to mount a significant rally. For now, play the aforementioned trading range until something happens to shake GE out of its doldrums.
Different from XOM, which is over seven points from its all time high, Chevron Corporation (CVX) keeps making a new one. After reaching 113.87 (just below the institutional sellers at 114) on Tuesday, CVX put in a double top from Thursday (113.59) and Friday (113.57). Expect a slow and stubborn rally if CVX can get back into the 113 handle and revisit these levels. Since going ex-dividend this week for 90 cents, CVX has put in a double bottom from Wednesday (112) and Thursday (112.10). This will be the key level on the downside. Interestingly, CVX was one of the few stocks on Friday in the Big 10, that did not participate in the rally and closed only 15 cents off its low (112.51) at 112.66.
AT&T (T) has backed off over a point from its 52 week and multi-year high of 38.28. Since reaching that level, T was only able to reach 38 again briefly, and resistance has been creeping down slowly. Now with a triple top from Wednesday (37.27), Thursday (37.32) and Friday (37.29), T has provided us with one of many reference points to determine if the recent high will be revisited. Keep in mind, if T clears the initial resistance, it will have another triple top from 37.50-37.52 to contend with on its way back to the 38 handle. On the downside, expect minor support at Friday's low (37.06) and major support at Thursday's low (36.63).
Johnson and Johnson (JNJ) was one the few losers in the Big 10 this week, falling from 68.64 to 67.80. Disclosure of Warren Buffet's position reduction in JNJ, along with setbacks on the research and development front has contributed to much of the recent decline from the multi-year high of 69.75. Taking into consideration JNJ's highly uncharacteristic move from 61.71 in early June to the recent high, JNJ may have some work to do on the downside to validate the upside move. Perhaps a pullback to 65.73 (50% of the move from 61.71-69.75) is on the horizon for this issue. Expect large sellers to be reloading at 68 up to Friday's high of 68.18. On the downside, below the minor support at Friday's low (67.51), other minor support can be found at the July 24 low (67.00). Before JNJ tests 65.73, it will have to take out the major support at the triple bottom from June 26th-June 28th lows (66.36-66.44).
Along the lines of consolidation, Wells Fargo (WFC) has had five consecutive closes between 33.96-34.13. WFC has traded in less than a one point range since August 6 (33.59-34.56). After making a multi-year high at 34.80 (induced by the Knight Trading mishap), WFC has been unable to get back to that level. Institutional sellers have been moving their offers down from that high steadily in the 34 handle. Therefore, expect minor resistance at Friday's high (34.30) and the August 6 high (34.56) ahead of the critical 34.80-35.00 level. On the downside, traders should focus on the triple bottom from Tuesday (33.87), Wednesday (33.83) and Thursday (33.78) to determine whether or not the rally in WFC has come to an end.
Another issue to succumb to profit-taking is Pfizer (PFE). After reaching a multi-year high of 24.49 on July 31, PFE has been struggling. Along with JNJ, PFE has suffered a setback on the clinical trials for its Alzheimer's drug that has accelerated the downside momentum. On Monday, PFE reached 23.66 and rebounded to well over 24 by Wednesday. However, on Friday PFE reached 23.67 and only managed to close at 23.79. If PFE breaches that double bottom, there will be minor support at 23.50, but no major support until the double bottom from July 24 (23.07) and July 25 (23.10). Expect institutional sellers in the book starting at 24 up to the double top from Thursday (24.08) and Friday (24.07).
We have seen tight ranges with the S&P futures making a multi-year high and two issues (AAPL and CVX) making all time highs. XOM also made a new 52 week high last week, while many other S&P components hover just below their recent highs. Without a flare up in Europe or some other international crisis, there is not much on the horizon to derail the slow roll north. With earnings season nearly complete, the market may continue with this slow grind north for the foreseeable future. Nevertheless, it is always prudent to have an exit strategy for individual issues as well as the overall market. With the index trading at these lofty levels, I would play it close to the belt. If the index retreats to 1400 and closes below it, it may be the time to take some chips off the table.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.