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Bears should lock in some gains

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Technology stock remain under pressure after this morning's warning from "big blue" as International Business Machines (NYSE:IBM) $86.54 -11.01% tumbles to levels not seen since December 2000.

For a technology bear, today may represent an opportunity to lower some stops in bearish trades you've been holding for a couple of weeks if not months.

One stock we've mentioned as bearish in recent weeks and profiled as bearish in the premierinvestor.net play list are shares of Canada-based telecom BCE Inc. (NYSE:BCE) $16.51 -6.19%. The stock is getting whacked to yet another 52-week low today, but getting close to the bearish vertical count of $14 from the point and figure chart.

BCE Inc. Chart - Daily Interval

Bearish traders in "telecom" stock BCE Inc. (BCE) are finding a nice gain in their accounts and should be looking to lock in a gain on a portion of their bearish position at 80.9% retracement or at least snug down a stop to help assure profitability. The point and figure chart hints at a bearish vertical count of $14 dating clear back to September of last year. premierinvestor.net profiled BCE as bearish the night just before the gap lower, which would have a trader short just above the $19 level. At $16.50, this has risk/reward now about 50/50, with a target of $14. However, I like to "cover to soon" and try and take gains early or at least protect them. With MACD approaching similar levels found back in September, I don't want to risk a rally right back up to the 61.8% retracement level of $18.97. Please note that the 80.9% level is right in between the 61.8% and 100% levels of retracement, thus the analysis that traders are now at a 50/50 risk/reward level and should be protecting gains. I'd lower a stop to the $17.26 level at a minimum, thus trying to assure a gain from profiled short near $19 (9% gain).

Cyclicals trading strong

Today's warning from IBM hasn't had too much of a negative impact on the Morgan Stanley Cyclical Index (CYC.X). In Friday's market wrap on premierinvestor.net we spent some time talking about this group of stocks and how they may actually help "economic bulls" filter through some of the higher energy prices that look to have been impacting the Dow Transportation Average (TRAN) 2,745 -1.18%.

Both the transports and the deeper cyclicals are groups that I have felt would lead a move higher if the economy were to show strength. While the transports definitely helped lead a charge high in March, they've recently come under selling pressure as tensions in the Middle East have grown. This makes it imperative for traders (bullish or bearish) to at least monitor the Morgan Stanley Cyclical Index (CYC.X), which may "filter out" some of the higher energy costs that have negatively impacted the transports.

While the transports decline may indeed be a vote by the MARKET that the economy is slowing once again, we don't know for sure because a key cost component in energy prices has been rising.

Morgan Stanley Cyclical Index Chart - Daily Interval

One reason even a "technology bear" doesn't want to be complacent with the handsome gains they are building in their accounts is that the deeper cyclicals as depicted by the CYC.X are still holding above trend today, despite IBM's earning's warning. A tech "bear" was well served in late February to monitor this group of stocks as it almost single handedly sparked a recovery in technology stock from their late February lows. As such, a tech bear that gets some nice gains like that found in BCE Inc. (NYSE:BCE) above, would snug down a stop in a bearish trade. If the CYC.X had broken upward trend today, then a BCE bear might rest a little easier, but that's just not the case today.

Jeff Bailey
Senior Market Technician
Option Investor

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