Breakdown or bear trap?
- MMC down nine trading days in a row
- Longest streak in more than 10 years
- Breakdown similar to recent upside breakout?
Wednesday was a milestone day for financial stock Marsh McLennan (MMC), but then again, so were Monday and Tuesday.
Yesterday, the stock closed lower for the ninth day in a row, its longest run of consecutive down days in at least a decade. Before Monday—the stock’s seventh-straight lower close—MMC hadn’t fallen more than six days in a row since 2014:
Source: Power E*TRADE. (For illustrative purposes. Not a recommendation.)
As of Tuesday, the stock had fallen more than 7.5% below the record close it hit shortly after breaking out of a roughly 11-week trading range, and closed at its lowest level since July. But it’s likely that any traders who were aware of these milestones had taken notice of the stock only because it landed on the LiveAction scan for high call options volume.
Yesterday, the options chain showed the largest call positions were concentrated in slightly out-of-the-money strike prices (expiring on December 20), which also happened to be within the former trading range:
Source: U.S. Energy Information Administration, www.eia.gov (For illustrative purposes. Not a recommendation.)
Getting back to the price action, the late-November reversal was a development many traders would refer to as a “bull trap”: an upside consolidation breakout that attracts buyers but quickly pulls the rug out from under them, dropping prices back into the range—or, as in this case, below it.
That may lead traders to wonder whether this week’s breakdown below the bottom of the consolidation is a potential “bear trap” that could be followed by an upswing. While a logical place to begin would be to see how MMC has performed after this type of sell-off in the past, we’ve already seen that the current move doesn’t have many recent parallels. For example, there are zero examples of other nine-day, 7.5%-or-larger sell-offs that dropped shares to their lowest level in 11 weeks.
However, MMC has made similar, if more modest, moves over the past decade. For example, the stock fell 7.5% or more in nine days, and closed lower the final two days, 14 other times. The stock was higher a week later in nine instances, and higher 10 times after two weeks.
True, that’s still a very small sample size, but it at least provides a possible benchmark, and a departure point for additional analysis. When markets are making “exceptional” moves, traders may need to think less about precise price patterns and more in terms of general price principles.
Note: MMC is currently scheduled to release earnings on January 23, 2025.
Market Mover Update: January WTI crude oil futures (CLF5) rallied more than 2.5% intraday on Wednesday, aiding the market’s bid to reverse direction for a ninth week in a row (see “Oil slump tests energy sector”).
Today’s numbers include (all times ET): weekly jobless claims (8:30 a.m.), Producer Price Index (8:30 a.m.), EIA Natural Gas Report (10:30 a.m.).
Today’s earnings include: Broadcom (AVGO), Costco (COST), RH Com (RH).
Click here to log on to your account or learn more about E*TRADE's trading platforms, or follow the Company on Twitter, @ETRADE, for useful trading and investing insights.