What You Can Learn From Tyco
No changes from last week’s
reports. I am not enamored with anything I am seeing.
Yes, the markets had a reversal day…but I have a sneaking suspicion
that upside will remain quite limited. Maybe,
the downside is also limited. I sure
hope so. I am finding strong charts in DEFENSE,
DEFENSIVE, HOMEBUILDERS
(needs a pullback), RESTAURANTS (needs a pullback)
and TRUCKERS.
Instead of a regular report, I decided to send out another
edition of “Anatomy Of A Top.”
In this second edition, I
chose Tyco
(
TYC |
Quote |
Chart |
News |
PowerRating). Why? It’s
simple. Every analyst, every pundit, every
doughnuthead, zipperhead and bonehead is bullish on Tyco. These same
prognosticators were bullish on Enron,
bullish on Global
Crossing
(
GX |
Quote |
Chart |
News |
PowerRating), bullish on Boston Market…bullish
on…well, you get the hint. I don’t
care what anyone thinks. I just follow chart patterns.
Two years from now, Tyco could be a $100 stock. That does
not matter to me.
It also doesn’t matter to me whether the stock goes to $1.
The only thing that matters to
me is that Tyco’s price and volume action was yelling for the investor
to sell. Let’s review.
The first shot across the bow was on Jan. 3 (A).
On almost 34 million shares,
Tyco dropped below its 50-day moving average, which was around $56.
This moving average smoothes out the short-term swings in
the stock and is a place where
institutions step up to support a stock. That had to be your first
clue of institutional selling.
If you weren’t out on that day, maybe Jan. 11 (B)
would wake you up. Volume was
not heavy, but the price action was horrid. Tyco broke through important
support at $53.50 and slashed through its
200-day moving average at around $52.75.
This is a longer-term average. You should have been out at this point…no
matter what. Yes, the stock can turn around and go right back up…but
it’s not the ones that go back up that count. It’s the ones that you
don’t sell and keep going down that will
affect you the most.
We then move to the two most important days
that screamed for you to get out.
The stock gapped down on Jan. 15 (C).
The gap occurred because the company missed estimates. This was very worrisome
for a couple of reasons:
- Most importantly, Tyco reminded me of AOL/Time
Warner
(
AOL |
Quote |
Chart |
News |
PowerRating). Both these companies,
for months, were telling Wall Street how good things were only to
miss estimates. Do I hear the word “credibility”? - Combine these misses with the fact that both
stocks are overowned by institutions
and you have a recipe for selling…and when they are sold…it is
like the Three Stooges heading for the door at once.
Jan. 22 (D)
was the day that put the whammy on the stock. This was the day that Tyco announced
the split-up of the company. Yes, those same Bozos were out saying
that it was a great move for the
company…that it would unlock tremendous value
for all the businesses and that the stock was way undervalued. Well,
that was only opinion. The market’s opinion
was much different. INSTITUTIONS sold
into the news…and in a big way. How do we know this? On 62 million
shares, the stock closed at the lows of the
day after being up over $6 closing
at $47.55. This was key evidence that the smart money was saying bye-bye
to the stock…and that is one big freight train that you don’t want
to get in front of.
The rest is history. As of this writing, the stock is down
to $33.25. I have absolutely no
clue where it will go from here, what news will come out, or whether
this will be even a bigger disaster. The only thing I know is that the
market gives clues with price and volume
action and Tyco spoke up loudly.