Building on a rally

●Canadian infrastructure manager BAM pushed to new high yesterday

●Stock opened and closed near top of day’s range


Chalk one up for the United States-Mexico-Canada Agreement (USMCA)?

Amid news that the US and Canada had hammered out their differences and a new (improved, with lemon-fresh scent!) trade agreement would become a reality, the US stock market opened the week with a bang yesterday. The Dow Jones Industrial Average (DJIA) jumped nearly 300 points in early trading and, like the S&P 500 (SPX), traded to its highest level since its September 21 record peak.

North of the border, it may have been more of a “bam” than a bang. The S&P/Toronto Stock Exchange Index (TSX) was up modestly, but shares of Canadian infrastructure investment firm Brookfield Asset Management (BAM) were way ahead of the pack, opening at a new record high (around $45) and up more  than 1% around noon ET:

Brookfield Asset Management (BAM), 9/10/18–10/1/18.  Open/close at top of range.

Source: OptionsHouse

BAM, which invests globally in infrastructure, power, and property projects—everything from planned residential communities to hydroelectric plants—is the second-largest infrastructure asset manager in the world.1

BAM has run up nearly 7% since its September 12 swing low, the most recent leg of a 15% rebound off its February bottom, when it dropped to a little above $37. (It pretty much knocked the ball out the park with its recent earnings releases in August and May, more than doubling estimated revenues and clobbering earnings by an even wider margin.2) The following weekly chart shows the stock just recently topped its pre-correction high from last December:

Brookfield Asset Management (BAM), 7/30/18–10/1/18.  Recent new highs

Source: OptionsHouse

Bulls may understandably see a longer-term breakout unfolding, but despite the new high milestone, yesterday’s price action may have given some traders pause about jumping on the bandwagon immediately. Look again at the first (daily) chart and you’ll notice that soon after opening at a new high, the stock dropped around 1% intraday (to $44.49) before trading back up near the top of its range.

That type of price action doesn’t happen all that often—at least not in BAM when the stock is at or near its recent highs. In fact, if you define yesterday as the stock making its highest high in at least five days and opening and closing in the top third of its range, it’s happened only 36 other times since October 1998. And the typical price action after these days suggests they may potentially signal a loss of bullish momentum:

●After one day (today) the stock closed lower 67% of the time and had an average loss of -0.5%

●After five days the stock was lower 58% of the time and had an average loss of -0.9%.

Also, the higher the open and close were in the day’s range, the more bearish the short-term outlook (although there were fewer examples to draw from). In other words, despite the seemingly bullish action on such days—a strong open and a higher high—the stock tended to pull back after them, at least in the short-term.

The stock’s had a high-momentum run recently, and yesterday it squeezed itself into the upper portion of its range amid friendly news about US-Canadian trade conditions. There’s no disconnect between a longer-term uptrend being intact and the possibility of a short-term give-back.

Momentum ebbs and flows—that’s how markets roll.

Market Mover Update: The Nasdaq 100 (NDX) traded above 7,700 for the first time yesterday, hitting a new all-time of 7,700.56 before pulling back.

Today’s numbers (all times ET): Eurozone PPI (5 a.m.), Motor Vehicle Sales.


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1 Top 50 infrastructure investment managers 2018. July/August 2018.

2 Brookfield Asset Management. 10/1/18.