Marshall & Ilsley: Not a Good Long

By L.A. Little of Technical Analysis Today

As a trader, you're always looking for general rules you can apply to your trading. With respect to a company's secondary offerings, they generally offer opportunity in bull markets, while in bear markets they represent risk.

The reasoning is that in an expanding economy a company typically issues debt to expand its operations. That expansion results in increased revenue and eventually greater profits. In a bear market, however, money is typically raised to pay down debt, to restructure and/or to fund continuing operations. This doesn't expand the top-line numbers. Without an expected revenue increase, the dilution that results from the secondary represents risk, not opportunity.

So, are we in a bull or bear market?

In the current market environment, the bull and bear opinions are extreme. Rather than try to answer this larger question concerning the general market, it is probably best to look at the particulars of the companies you're interested in.

This article will concentrate on Marshall & Ilsley (MI Quote), a regional banking concern. Last week, MI priced 136 million shares at $5.75, raising almost $800 million. So is it a buy or a sell?

What Do the Charts Say?

As a trader, I typically let the charts guide me. Although it is wise to stay abreast of the fundamental events that can affect a stock's price, a technician implicitly assumes that those fundamentals are captured in the charts. So what do MI's charts say?

From a longer-term perspective, Marshall & Ilsley exhibits a large triangular continuation pattern that is bearish. See the following chart.