Today's Market WrapUp 09.13.2007 Mon Tue Wed Thu Fri Goldberg Archive Important
Long Term Technical Relationships
Today’s article focuses on technical charts of long term relationships which have meaning to the non technician. These charts are not about scalping a couple of points for a quick technical profit. Instead they outline important long term technical levels which are telling us something about the fundamental picture. Consider the long term monthly chart of Wal-Mart Stores Inc. While Wal-Mart was a darling of the late 1990’s, investors who purchased the stock in mid-1999 and held for over 8-years have only an inflation-ravished $43 dollar stock and some meager dividends to show for their 8 year investment.
Of more importance is that Wal-Mart stock has made a series of lower highs every couple of years in 1999, 2002, 2003, 2004 (twice), 2006, and 2007. While making lower highs, the lows have held steady at about 42 in 1999, 2000, 2001, 2002, 2005, 2006, and today. The descending triangular formation tends to have bearish implications. Support tends to be technically important. The longer the term is and the more well defined the support, the more technically important is the break once it occurs. As of today, Wal-Mart stock is teetering on the brink where a break of support may take the stock down to long term support at its long term 1998 support at $25/share. Assuming no dividend cut on the part of Wal-Mart, $25 Wal-Mart stock would result in an historically reasonable dividend of 3.7%. Will this happen to the mighty Wal-Mart tomorrow? Probably not. But it is important to consider that such happenings are far from unprecedented and have a basis in reality that should be considered seriously if the long term support at $42 is broken. Whereas the Wal-Mart action tells a story about the price of imported goods from China and the behavior of the US consumer, the action of the Wilshire 5000 index is a story of how the market feels about equities in general. The Wilshire is a broad-based index of US equities of all types of businesses and all market capitalizations. Whereas various stock categories come and go into style, the Wilshire depicts the overall category of stock equities. As you can see in the chart below, the Wilshire now sits right at its 2000 high after having moved into new high ground earlier this year. This is an important technical level which deserves attention for technicians and non-technicians alike.
A similar analysis is also relevant to the category of large capitalization stocks as represented by the S&P 500.
The long term monthly chart of gold is illustrated below. It does not take a genius to see that gold is in a healthy bull market. Investments should be with the active long term trend.
Today’s Market The market was broadly up on light volume today. The most astute observation I have to offer with time of the essence is that today was a bit of an upside-down day. The strongest appeared to be the weakest and vice-versa. The sector indices near the flat line or marginally down consisted of semi-conductors, biotech, and telecommunications – three of the best performers over the last year. On the flip side, some of the weakest sectors moved decisively higher today such as broadline retailers, airlines, banks and financial institutions, and specialty retailers. This translated right into some of my holdings as MacAfee, Berkshire Hathaway, and Meridian Biosciences were flat or down today, while Sears, Macy's, and American Airlines were up strongly. One stock that is worth a serious look is Wachovia Bank (WB), a stock that has done little for its shareholders over the last few years in the face of a bull market. Note the importance of $50 per share as an important technical support/resistance level. It closed today just above 50.
Have a great evening.
Martin Goldberg Copyright © 2007 All rights reserved. Special Note: After today I will be posting the market wrap up on the third Thursday of each month in order to focus on some other important things. Please visit http://martinmarketreport.blogspot.com. Thank you. CONTACT
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