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Pin the Tell On the Bull



Last week we looked at the technical picture for General Electric (GE: NYSE), one of my tells for the broader market. Go here if you missed it.

Today I want to look at a few more stocks that I'm watching carefully for clues that the bulls' grip on the market may be slipping. They are Citigroup (C: NYSE), Microsoft (MSFT: Nasdaq) and 3M (MMM: NYSE).

We know how important the financials are to the market structure. As a percentage of the S&P 500, financials comprise slightly more than 20%. Monitoring the technicals of C (and GE for that matter) can offer us a fairly good "heads up" as to what is occurring within this broad sector.

The chart of C, below, shows that the last time this stock gave a sell signal was in early March (the triple bottom break at 31) followed barely a week later by the double top breakout buy signal at 34.5. Since then the stock has moved higher in a very orderly manner on the chart, higher highs, higher lows, and has yet to falter technically. The first sign of trouble I'm monitoring is 45 at which point the stock will have retraced more than 50% of its recent breakout at that level. Finally, I want to keep an eye on the well-defined support level of 42.5. A tick at 42 would confirm the violation of that support.

Now, MSFT has to be a sore spot for bulls. The stock has basically thumbed its nose at the rally that began in March, and although it remains on the point & figure buy signal it gave last October, the relative strength is troublesome. Just as some bulls argue GE is not the bellwether it used to be, I've heard the same argument made with respect to MSFT. Certainly MSFT has not been an important factor in this rally, but keep in mind this is both a Dow stock and an important member of the S&P 500.

What troubles me on a technical basis, apart from the stock's poor relative strength readings, is the fact MSFT has not even come close to challenging its November high. The stock isn't anywhere close to a point & figure sell signal, or even a reversal down on the chart for that matter. So, rather than looking for signs of a breakdown, what I'm looking for are signs that the stock is coming to life. Signs of strength from this stock this late in the game (based on the poor field position of our indicators) would suggest to me we may have entered the final blow-off stage of this rally.

Lastly, let's look at 3M (MMM: NYSE). Steve Hochberg and Pete Kendall of Elliott Wave International pointed out in May of 2002 that MMM may ultimately be the last Dow stock to top. (No, I do not use Elliott Wave theory as part of my market analysis, but I do try to pay attention to what other intelligent analysts have to say about the stock market. Remember, my belief is that point & figure analysis is simply a way to approach the market, not the way.) The point & figure chart of MMM is below.

The point & figure chart shows that MMM has reached a potentially critical turning point. In late April/early May the stock broke a long-term trend line (one that had been intact since November of 2001) when it gave a sell signal at 126 and penetrated the trend line, then at 124. Since that breakdown the stock has seen a slight recovery, but has moved higher on weaker monthly momentum. Meanwhile its relative strength chart versus the broad market has reversed down. The evidence at this point suggests MMM is unlikely to see a new high anytime soon. A move to 118 would confirm, on a point & figure basis, the likelihood of a more important bearish leg down.

Ultimately, my risk profile and decision-making is determined by the Bullish Percent indicators I follow (all of which remain positive), but if these stocks begin to sustain technical damage it will likely spread to other areas of the market sooner rather than later, and that's something I definitely want to see as it happens.

No positions in stocks mentioned.

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