It's Logical

Dow 1929<-> Nasdaq 2000 Analog Chart Keeps Giving

Our Analog Chart showing the parallel moves between the Dow before and after the 1929 peak and crash and the Nasdaq peak in 2000 and subsequent crash has played out nicely, calling the bottom in March. Now things look less directional, as you can see in the chart below.

I do not see any major bull market for round 4 years. I think the trend is down/sideways for the next 4 years.

See earlier articles on MarketHistory.com

Buy the Chocolate Dip

Hershey released earnings this morning, and The Street did not like what it heard. (65 cents versus an estimate of 71 cents). The stock is down over $1.87 at this writing to $50.50. I view this as a buying opportunity.

Both cocoa and sugar, especially sugar, have been coming down in price recently, and this bodes well for the future. Also, I like all the new product innovation that the company is showing.

The biggest reason of all for getting in today is that starting from the close today, the day that HSY reports first quarter EPS, to the close 16 trading days later (Feb 16 in this case.)  HSY has always been up since 1993. MarketHistory.com analyst Mickey Schoenhals featured this bullish tendency in Hershey in a trading idea published on that site this morning.

You can buy the stock with a stop loss of $47.79, and risk a few points, or if you want more leverage, I’d buy the August 55 calls, currently trading at $1.15. I think by August HSY could touch $60 and then these calls would be worth around $5. I really like the long term pattern that HSY has made, but it may take a while for the stock to gather steam. That is why I would not mess with any near term options, despite the good 16 day start that you may get.

If the stock does indeed pop up over the next 16 days and you can get near $3 for the calls, take the money and reload on yet another pullback. This stock trades in fits and starts, and it is good to take a very quick profit if you are fortunate to get one. 

IBM Earnings Analysis

IBM just came out with earnings, and the Street did not like the 11% increase in profits. IBM is trading in after hours at $93.70 right now, down around $6.

As I mentioned in my earlier IBM January 95 call buying strategy, I thought that IBM would not simply cruise through $100 on its first attempt, and that profits on your call purchase at $1 to $1.50 should have been taken at $4.40 level had you gotten into the trade. This chart shows what IBM has done since we made this call.

These calls went on to trade as high as $6; however it looks like these calls will expire worthless tomorrow. You have to know when to take profits, or POOF, you can lose your shirt!

For a look at how IBM performs after historical earnings releases, see the chart below. For a full analysis of IBM's performance leading up to and after earnings announcements, see MarketHistory.com's Earnings Edge analysis of the stock (subscription required.)

IBM Option Trade Followup

IBM was up over $1.00 per share on Thursday, and the January 95 calls that I recommended that you purchase at between $1 and 1.50 a while back traded at my recommended exit price of $4.40. If you took my advice, you have a tidy profit. Congrats!

IBM option trade followup

On November 3rd, I mentioned that I expected IBM to close around $95 on option expiration day (it actually traded as high as $94.05 on Friday, expiration day) and recommended that the IBM November 90 call options be bought on a "pullback", ideally at $1 if possible. IBM did make a pullback, but not as big as I was hoping for.  These options got as low as $1.75.  They traded at a high of $4 on Friday.

IBM still a buy

I still like IBM as a buy. (We posted another bullish story on IBM on markethistory.com on November 13). I would look for yet another pullback in IBM and try to buy the January 95 calls (symbol is IBM AS and which closed trading on Friday at $2.20) as close to the $1 to $1.50 area as possible. I think that IBM will now take a run at $100, and that these options will be then worth at least $5. I'd want to go a little further out than the December option series, because I'd want to capture any strong money flow into the market at the beginning of the year. Also, there may be a run up in IBM stock in anticipation of a good fourth quarter earnings release.

But don't get greedy . . .

I still am concerned about the open gap in IBM's price chart, at the $88-89 level, and that is why I would tread carefully and try to buy the calls as close to the $1 to $1.50 range as possible. If you are indeed fortunate to pick up the calls this cheaply, do not hesitate to unload them as IBM gets near $100. I do not believe that IBM will cruise through "par" quickly or easily on its first attempt, so it will suit you well to bag a profit immediately upon this first attempt at IBM getting through $100. As a matter of fact, if you do get into this trade, I'd immediately put a good until cancelled sell order to unload the calls at $4.40. It is sometimes good, in cases like these, to have a sell order sitting, ready to be executed, so you do not get caught up in greed or the moment.

Also, if you get busy  and IBM does take a run at $100, you wont miss getting out as your order will already be in.

IBM option trade

International Business Machines (IBM), was up on October 17, the day that it released earnings, as well as the day after. Since 1990, IBM has acted this way in 22 prior eps releases. One month later, IBM has been up 86% of the time, with an average gain of 7.68%. When the earnings were released, the stock "gapped up"on October 18, and it was trading around 91.80 as I wrote this post. I would wait and see if IBM pulls back to fill the open gap in the 88-89 chart area, and if it does, purchase the November 90 calls. At that time, the calls may be trading for $1 or so, and if IBM performs what it usually does, on average, the stock would be trading around $95 around the time of option expiration on November 17.

In order to run this query on your Market Information Machine, here is the syntax that you will need:

SHOW

1: percent_move from 1 day later to 1 month later

WHEN

IBM is up repeated for the current and the next day

AND

EPS_date (IBM)

AND

Date is after 1989