Is 3M the next IBM? Here’s your trade! (October 25, 2017)


I want to look at IBM ( NYSE:IBM ) and then 3M ( NYSE:MMM ), so altogether 4Ms. Okay, IBM ( NYSE:IBM ), strong earnings, cloud, it is all good. Everybody loves big blue, I even have IBM’s ( NYSE:IBM ) old motto on my desk, an original placard from them, it has one word on it, ‘Think’. I look at it every day and that is what I am doing here.

The company reports strong earnings. The stock pops up here and then just keeps going. This was the high, 161.23, you got it there. And then the next day it popped up even higher. So this is a stock that seems like it is going to the moon. But you know this can’t last.

This is a classic Phase 1 breakout from a volatility squeeze. We have got the squeeze here and then we get a breakout. And that breakout can go as long as it wants to but at some point it is going to be done going up and then that is when Phase 2 would start, which is the pullback to retrace at least part of the move between the pre-pop here if you want to call it that. The squeeze level right before the stock popped up and then the high.

At some point it starts to retrace that. If it falls back a little bit and then moves up, that is a good thing. If it falls back more that is a little worrisome. It falls back here, that is definitely worrisome. And if it falls back here, well, you should have been long gone before then. So we are waiting for this pullback. Then you know what is going to happen next.

This right here is when you are selling; you have got to be out of this stock by then. You should have been actually earlier than that but we will just use this as an exit. So you know that the stock is done going up. Now the only question is how far down is it going to go? You sell here. You can always buy it back. “Oh, I am afraid that the stock is going to go up without me.” Dude, sell it at 160.00, buy it back at 163.00, alright? I guarantee you, you are not going to be doing that for a while, quite a while. Now the stock is down here again and it is basically done. What do you do with IBM ( NYSE:IBM )? Nothing except maybe wait to cover your short if you shorted the stock. But we are moving on here.

3M ( NYSE:MMM ); we have a similar dynamic here. Everybody I saw pumping it on CNBC this morning, it is like, “Oh my gosh! 3M!” This thing continues to move higher. At some point this is going to do an IBM ( NYSE:IBM ), I guarantee it. So what I would suggest doing on this trade: If you are already long the stock use today’s intraday low of, we will call it 234.00. Don’t let the stock get down below 234.00 with you still in it, that is about 1.5 percent of risk. But you can ride the stock up as long as it keeps going up, but you have got to just back stop your position.

And by the way, the way the market is trading now, when 3M ( NYSE:MMM ) finally breaks down, hopefully tomorrow we will get one last gasp that goes even higher. But when it finally does break down this is going to set up to actually be a pretty good short. You have got to be quick. You have got to be nimble. But once the stock starts rolling over I think you can get 4, 5, 6 percent out of the return, maybe even more.

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