3:00 pm ET: True to form, the market is following through on Friday's rally. Since June, the SPX has risen in a series of intense rallies lasting for two to five days followed by a string of down days leading to a pattern of higher highs and lower lows. Any market technician will tell you that this is a bullish pattern (yes, I know--duh!), but what they can't tell you with any degree of accuracy is how long this rally can last.
Well, right now the SPX is tickling the 1400 mark which is an area of psychological resistance (although it's really not much of a technical barrier). As noted here on Friday, the Dow Transport Index (DTX) has been running contrary to the other averages--that is, instead of making higher highs and higher lows, it's been making lower highs and lower lows--a bearish sign. Today the index is running true to form and is having real problems holding onto it's opening gain. A continued decline going into the close could spell the end of the current leg up in the SPX rally--swing traders take note!
In sector news, the IT etf (NYSEARCA:VGT) broke $70 resistance. The index faces resistance at $72 and major resistance at it's previous high of $75. The consumer staples etf (NYSEARCA:XLP) is hitting another all-time high. The stock is up 12% since its January low and pays 2.5% dividend.
In M&A news, Best Buy's (NYSE:BBY) CEO alerted the company's board that he wants to take the company private for $24 - $26 per share which is 36% - 47% above Friday's close. The deal would involve major debt financing which is precisely what the company does not need right now. Judging from the fact that the shares are off 7% from the opening high of $21.60 means that investors don't have a lot of confidence in the deal structure. An analyst covering the company added more rain to the parade by saying that major shareholders probably wouldn't be interested in parting with their shares at any price under $30. The moral of the story is that if you're interested in capturing a possibly juicy arbitrage (up to 30% with the stock currently priced at $20 and a takeover bid of $26), please note the attendant risks and play with a small amount of discretionary funds.