The Lowdown on Two Big Chips

02/02/2007 12:00 am EST


Jocelynn Drake

Financial Analyst, Schaeffer's Investment Research

Schaeffer's trading expert Jocelynn Drake takes a look at the large-cap stocks, from a technical point of view. Here, she finds two worth watching--one for the downside and one for a possible rally...

"3M Company's (MMM NYSE) fourth-quarter net income soared 58% to $1.18 billion, or $1.57 per share and sales jumped 9% to $5.78 billion. Excluding items, earnings came in at $1.10 per share, compared to estimates of $1.14 on sales of $5.76 billion. 3M expects 2007 earnings between $4.60 and $4.75 per share (on an adjusted basis) compared to estimates of $4.99 per share. The stock gapped lower on the open, falling through former support at the 77 level. It managed to reclaim support at the 75 level, representing a 50% retracement of the stock's rally from its August low of $68.18 to its November high of $81.95. However, MMM's attempts to climb have been hindered by its 160-day moving average at the 76 level.

"From a longer-term perspective, the shares could be in a bit of trouble. The stock has created a series of lower highs since hitting its June 2004 high, indicating its strength is waiting. It could be due for another pullback to support at its ascending 80-month moving average at the 68 level.

"Colgate-Palmolive (CL NYSE) boasted fourth-quarter earnings of $401.2 million, or 73 cents per share. Excluding items, earnings came in at $436.9 million, or 80 cents per share, as sales increased to $3.21 billion. Analysts had predicted earnings of 77 cents per share on sales of $3.12 billion. Yet, investors were not impressed. The stock fell into the red on the open, but bounced off support at the 66 level, marking a high in the shares in January 2000 and December 2000. However, this rally has been cut short by resistance at the 67 level, which has capped the shares on a daily closing basis since late November. It is an understatement to report that the stock is stuck in a narrow trading range.

"It is encouraging to see that the stock has been in a strong uptrend since mid-May 2005, using the occasional support of its rising 10-week and 20-week moving averages. After brief consolidation under the 67 level, it could continue its uptrend. From a sentiment perspective, it appears that options players are relatively optimistic. The stock's Schaeffer's put/call open interest ratio rests at 0.71 in the 10 percentile. However, out-of-the-money call open interest is extremely light, indicating that investors don't expect the shares to run much higher. A break through resistance at the 67 level matched with these low expectations could help fuel the next leg of the stock's rally."

  By clicking submit, you agree to our privacy policy & terms of service.

Related Articles on