Thermo Fisher (TMO): Critical Juncture ~ market folly

Monday, June 9, 2008

Thermo Fisher (TMO): Critical Juncture

As you can see from the chart above, Thermo Fisher Scientific (TMO) has been forming a beauty of a triangle over the past few months. Triangles of this size usually imply consolidation before a big breakout/breakdown. And, this one certainly looks like it will breakout to the upside, given the number of times it has tested overhead resistance at around $59. But, at the same time, it very well could breakdown below its triangle given the shoddy market conditions we've been seeing. I'm in this name and have been for a while. This is not a trade for me, its an investment. TMO and MIL make up my "life sciences" basket in my portfolio. And, an added bonus is that numerous very smart hedge funds have been accumulating positions in TMO over the past few quarters. (Most notably, Blue Ridge Capital, as detailed here).

So, even though I'm personally not trading this name but rather investing in it, I'm definitely keeping my eye on the overhead $59 resistance and the trendline that is established on the bottom side. If we break below this trendline and make a lower low, I will most likely exit this name and look for a better entry point to get long this as an investment again. This is why technicals are so important and can be a great weapon to add to your investment arsenal. Even though I think TMO is a great name to own, this chart is implying a big move soon, most likely to the upside. I believe this is the case because the formation has been building for months and accumulation/distribution is showing slow and steady accumulation over the months. So, keep an eye on it, and get in it for a trade or an investment, whichever you prefer. Momentum traders would like to play this name on a move upwards of $59 on some solid volume. Whereas others might like to play it right now on todays bounce off the 50 day moving average.

All I know is that TMO is making higher lows and has consolidated beautifully over the months. Look for a move with conviction in either direction. Just let the break of the triangle dictate whether to get long or short. I know I'll be monitoring my position intently due to the nature of this market and the nature of this big formation.