As Big Blue Goes?

  • Posted by
  • on May 14th, 2010

The Goldman news is behind us.  Greece is behind us.  Fat-finger Thursday is behind us.  Happy days ahead?  On a sentiment level, I say Yes.  Each of those events caused sharp selling, and within a few days we absorbed the news and traded higher.  However, the cumulative effect of the month’s events have taken their toll, leaving us in a state of unease for both bulls and bears.

The Euro peaked in December, and became the go-to proxy for risk appetite by dragging down the US market in late January.  Our market was able to shake it off in mid-February and staged a broad rally into late April, before succumbing again to Euro concerns on April 27.  Are the body blows beginning to wear down the bulls?

My opinion is that dispersion is coming.  I mentioned this last week, that another “full correlation” event had appeared but that I didn’t expect it to persist.  I still believe this, and while markets face digestion in the weeks ahead, the long-term underpinnings of the uptrend remain supportive.

What’s the plan?  My plan after last week’s event was to seek Euro-driven dips, and look for signs of independence by sectors or stocks.  What we’ve seen has been very surprising to me…I’m not surprised that we didn’t retest the lows, but I am SHOCKED that we recovered all the way back to the pre-crash levels in 3 days.

That brings me to IBM, which I view as a possible “tell” in this tape.  It’s at the upper end of the range that has capped its upside since 1999, and given the steady fundamentals it would appear that market psychology will be the biggest driver.  Its price has gone nowhere by doubling its earnings and halving its P/E…fairly common in the “aughts” for large cap growth but no fault of the company’s.

I’m not here to make the fundamental case for IBM…it’s widely followed, has a favorable opinion from most analysts, and is generally considered a steady blue chip in technology.  It will lose the EPS tailwind of a lower dollar as we get into the 2nd half of 2010, but not exactly a YOY headwind unless the dollar really kicks into gear.

What attracts me is the ability to use this stock as a proxy for the market’s risk appetite.  It’s a little chicken and egg-ish, but I believe this stock has the potential to carry the next phase of the market IF we see less focus on macro issues and more focus on company issues.  Its fundamental health tells me it won’t be the cause for dragging the market down, but if it gets some lift it could really be a torchbearer for the bull case.  Big Blue to the rescue?  I’m watching it like a hawk.

The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.

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