Wishing Upon A Star

Star Light Star – oh wait . . .

Last week I, and lots of other internet chatter board members, noticed a potentially strong reversal signal setting up in the markets.

star patterns

A star pattern can be a strong reversal signal – if (just like with breakouts) there is a strong follow-through.

I bet short sellers were drooling at the thought of a market reversal.

Too bad their wishes didn’t come true.

star 3

That follow-through never happened.

So the markets remain in an uptrend, and by the way, in over-bought territory with yet another potentially disappointing earnings season soon to begin.

So of course the markets are going to continue going up. Right?

Who know’s?

Janet Yellen and the Fed did everything in their power to support the current rally by reversing their expected hawkish view.

I’m reminded of that famous quote from Forrest Gump.

Fed speak and the market is like opening a box of chocolates, you never know what you are going to get.

I’m not going to try to predict the market. But I will try to follow trends and to keep an eye open for confirmed reversals and buying / selling opportunities.

I have already written about MSFT and others in my previous posts. Another one that I am waiting for confirmation is SWHC. It is currently under pressure by activists and downgrades yet continues to show growth and demand due to politics and policy fears. It showed a good pop last Friday, but as of this morning, no follow-through due to downgrades which are pushing it back down.

If it holds the 50dma then that might be a good buying opportunity.

With watching for opportunities in mind, here is my latest and greatest screen generated watch list for April.

Ticker Name
AYI Acuity Brands, Inc.
GOOGL Alphabet Inc.
MO Altria Group Inc.
AMGN Amgen Inc.
AHS AMN Healthcare Services Inc.
AOS AO Smith Corp.
ARW Arrow Electronics, Inc.
AVB Avalonbay Communities Inc.
AVGO Broadcom Limited
CDNS Cadence Design Systems Inc.
CVCO Cavco Industries, Inc.
CTXS Citrix Systems, Inc.
CCOI Cogent Communications Holdings, Inc.
COR CoreSite Realty Corporation
CRTO Criteo SA
CSGS CSG Systems International Inc.
CUBE CubeSmart
DHR Danaher Corp.
PLAY Dave & Buster’s Entertainment, Inc.
EFX Equifax Inc.
ELS Equity LifeStyle Properties, Inc.
FB Facebook, Inc.
FEIC FEI Company
FIVE Five Below, Inc.
FBHS Fortune Brands Home & Security, Inc.
GK G&K Services Inc.
G Genpact Limited
ROCK Gibraltar Industries, Inc.
GILD Gilead Sciences Inc.
GGG Graco Inc.
GVA Granite Construction Incorporated
INGR Ingredion Incorporated
INXN Interxion Holding NV
ISRG Intuitive Surgical, Inc.
MKTX MarketAxess Holdings Inc.
MMC Marsh & McLennan Companies, Inc.
MAA Mid-America Apartment Communities Inc.
MORN Morningstar Inc.
NVR NVR, Inc.
OFS OFS Capital Corporation
ORLY O’Reilly Automotive Inc.
PAYX Paychex, Inc.
PNW Pinnacle West Capital Corporation
POOL Pool Corp.
POWR PowerSecure International, Inc.
PBH Prestige Brands Holdings, Inc.
PRMW Primo Water Corporation
PSA Public Storage
ROIC Retail Opportunity Investments Corp.
RYAAY Ryanair Holdings plc
LUV Southwest Airlines Co.
SYK Stryker Corporation
SKT Tanger Factory Outlet Centers Inc.
SHW The Sherwin-Williams Company
THO Thor Industries Inc.
UFPI Universal Forest Products Inc.
VRSK Verisk Analytics, Inc.
VZ Verizon Communications Inc.
VMC Vulcan Materials Company
WEB Web.com Group, Inc.

Until next time,

Be good, Do Well, Have Fun, and stop wishing, start following, and most importantly – wait for that all important follow-through.

Three Stocks To Trade On Earnings This Week?

apple-biogen-radware

First of all, there are actually eight BWB watch list stocks reporting this week.  In the interest of brevity and screen space I will dedicate much of this post to just three of them.

AAPL

If you don’t know about Steve Jobs, or Apple, or all the wonderful products invented by the two; you must be one of the 4400 who have been abducted by aliens and had all your memories erased. Even those living under rocks know about Apple.

But as investors, this is all you need to know and ask yourself.

Will Apple blow away all estimates for this past quarter AND will they give good guidance for next quarter?

Here are some of the facts, and speculation, that will affect the direction of the stock.

  • Apple is expected to have its best quarter in 11 quarters.
  • Apple had supply chain constraints which affected delivery of the latest iphone models.
  • The iphone 6 plus was designed, and sold, to boost margins. Everyone will want to see by how much.
  • With all “i” products already released, just about the one and only (highly anticipated) new product release is the upcoming Apple Watch. Any mention of supply chain issues, delays, or such will impact expectations.
  • China is now the major buyer of iphones, not the US.

aapl

From a technical chart perspective, Apple is forming a wedge pattern within a strong consolidation base. This base has a strong support line of approximately $105 and an upper breakout resistance price / buy point of $120.  A wedge pattern is often associated with a consolidation and, well, breakouts can occur in either direction.  The pattern is also a bit choppy which indicates uncertainty / volatility associated with any future price movements.

Personally I am as indecisive about the future direction of this stock as the stock market appears to be. With what little I know about option spreads, this appears to me to be a good candidate to hedge your bets on. Otherwise, I would wait until after earnings and trade in which every direction the market drives the price.

  • Note: there are some other, IMHO better, plays of Apple which I prefer. Those being the suppliers of said iphone, ipad, and Apple Watch products.
  • Most notably AVGO, NXPI, and SWKS (which I currently own).  All three are part of the IBD 50, are rated higher, in groups that are in the top 10% of the market (money/momentum wise) and show better chart patterns than Apple.

BIIB

biib

Biogen is a top rated stock on IBD50 and has been showing good technical strength lately by breaking out above both a flat base and horizontal price channel.

Biogen has a good pipeline of products, recent acquisitions (which give them exposure to other products) and the stock price continues to push all-time highs.

Even on the option front, one article says that sentiment may be changing from bearish puts to bullish calls.

On the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the stock’s 50-day call/put volume ratio of 1.56 stands higher than 93% of all other readings from the past year. In other words, option buyers have initiated bullish bets over bearish at a faster-than-usual clip during the past 10 weeks.”

With everything seemingly pointing in the same upward direction it definitely appears that BIIB has the green light going into earnings.

RDWR

Radware is an IT security and software delivery service company for Virtual Servers, Cloud Storage, and Data Centers. It too is enjoying a rising tide of business and its stock price reflects this.

rdwr

Looking at the chart, I am struck by how similar the pattern is to what ALK looked like this time last week. In fact, it is almost identical.

It is well within a strong rising price channel, and recently broke out above a brief consolidation base. This base was formed when the stock price reached a point that caused two upper (resistance) trend lines to cross. From a technical chart pattern perspective, this is not a bullish sign. Both ALK and RDWR reacted the same way by trading in a somewhat choppy horizontal direction until reaching the channels lower support level.

Of course, this all means nothing regarding the future direction of RDWR based on its upcoming quarterly report, but the similarities are striking.

Fundamentally the company is strong and just recently received an upgrade rating from underperform to perform with a price target of $26. That represents over a 13% gain from last Fridays closing price.

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Listed below are the eight reporting stocks along with their report date, corresponding IBD rankings, and brief comments on each by me.

Ticker Company Sector Industry REPORT DATE IBD Rating IBD Rank within group Group Market Ranking Notes
AAPL Apple Inc Consumer Goods Electronic Equipment 27-Jan 89 4 73 consolidating wedge / base with 105 support
BIIB Biogen Idec Inc. Healthcare Biotechnology 28-Jan 99 1 1 Breakout horizontal Price Channel (PC)/ Base – trending up?
COH Coach, Inc. Consumer Goods Textile – Apparel Footwear & Accessories 27-Jan 34 18 105 Rising PC off of low support line – will reversal continue?
DOX Amdocs Limited Technology Business Services 27-Jan 83 17 34 Top Level Resistance
GD General Dynamics Corp Industrial Goods Aerospace Defense 28-Jan 75 17 57 Rising PC – Consolidation
RDWR Radware Ltd. Technology Information Technology Services 28-Jan 98 1 51 Rising PC – two crossing top trend lines – similar to ALK last week
TCB TCF Financial Corporation Financial Money Center Banks 29-Jan 51 46 72 Big recent bounce off of support – large wedge – still below r/s line
VIAB Viacom Inc Cl B Services Entertainment 29-Jan 50 16 56 double bottom – reversal ?

High Probability

high probability

As I sit here watching the Green Bay Packers calmly go up on the Seattle Seahawks because of turnovers, I am reminded of a quote from a book I started reading this week. It’s called High Probability Trading by Marcel Link and the quote is this: “You win by taking what the market gives you”. It’s just like this game. You don’t try for the big play each time, but you wait and take advantage of the opportunities that are given you.

Mr. Link is a professional trader by trade and has learned from both some of the best traders in the business and from some of the best lessons life has to offer from the school of hard knocks.

I find this book refreshing on two levels. One, he talks about terms and setups in plain (Keep It Simple Stupid) English and secondly he stresses a lot of common traits and philosophies I have grown to adopt and are, in some ways, very similar to IBD. Most notably preservation of capital, follow the market (money) and take what the market gives you. If you try and fight the market, or go for unrealistic gains, you are doing nothing but setting yourself up for failure. Related to that last part, he mentions a saying “trade the rumor, fade the news”. In plain speak, by the time you hear about something, especially now a days, on the evening news – as far as the market is usually concerned – it’s probably old news and the announcement has already been built into the price of the stock.

And this brings me to my post from last week, Floating Money. In that post I talk about news I heard and read about Oil producers leasing large oil tankers for up to a year to store excess oil reserves.

Taking a look at the price movement of said tanker companies, like FRO, they had already enjoyed a huge run up in price. If I were to have followed Mr. Link’s advice, the higher probability trade would have been to fade the news and wait for a sell signal to short the stock. Instead, I took a chance that it had more legs to run on and had put some money into the stock (see my twitter feed for confirmation). Even though I was lucky enough to get out with a 10% gain, it did not take long for the breakdown and sell signal to occur. The following day was the start of a huge selloff of FRO.

fro

My trade was not a high probability trade.

This week there are four stocks from my watch list scheduled to report earnings. Taking the same “trade the rumor and fade the news” approach to viewing this week’s choices might be the prudent thing to do.

Two of the stocks are airline stocks. For months oil prices have dropped as well as the cost of fuel. During this same time, ticket prices have basically remained the same. Most airlines have been taking the fuel savings and refitting airliners to hold more people. Right now many airlines are able to enjoy a 80% plus booking rate. The incentive to lower ticket prices just is not there. It is for this reasons that most any news feed, stock analyst and market pundit are expecting airlines to report record numbers for their quarter reports. And they will probably be right. The key will be what both next quarter’s forward estimates and the rest of 2015 estimates by the airlines are. If you look at the charts for the two airline watch list stocks reporting this week, you might just see some mixed signals. And most importantly, do not forget what the rest of the market is doing.

Alaska Air Group (AKS) reports Thursday.

alk

This stock has enjoyed quite a nice run since last October. However, if you look at the trend lines, there are only two upper trend lines which often prove to be resistance points. They also happen to cross each other which, according to Mr. Link, is not a good signal. It is true that this stock has enjoyed a nice run since October and just recently had a consolidation after hitting the upper resistance trend line. But the big question is; will it continue through earnings?

One other point I have picked up from the book is to look at a stocks trend from multiple time frames. In other words, from a yearly, monthly, five and or ten day and finally intraday. The best possible trading situation is to have the same buy signals, setups, and trends at each level. This is not too much different from IBD’s philosophy of buying stocks only during a market uptrend – just more detailed.

ALK is actually showing good upward trends on most time frames. The biggest negative is that it continues to flirt with the top resistance line, which is a sell signal. Personally I am going to wait to see how the market reacts this week and to earnings before deciding to invest in ALK.

The other airline watch list stock reporting this week is Delta Airlines (DAL).

dal

Unlike ALK, DAL has fallen off of the top level resistance trend line and has yet to establish a clear consolidation pattern or lower support trend line. However, I do see a possible level of support just above $40 which is both the last top level resistance from Novembers Breakout and very near the 200 day moving average. This is the type of pattern I expected to see with ALK, but clearly the market thinks ALK stock is stronger stock.

The other two watch list companies reporting this week are IBM and PetMed Express (PETS).

ibm

IBM has yet to recover from its last disappointing report and in fact has failed to successfully regain its fifty day moving average and just this past week appears to be failing to break out of a wedge / reversal pattern. Clearly not good signs going into earnings. Maybe they will surprise but as of right now it is not looking like a high probability trade.

pets

PETS is yet another stock showing weakness off of the top resistance trend line and using IBD’s standard, looks to have failed a breakout above its last buy point of $14.30 (the start of the top trend line).

So going into this earnings week, ALK appears to be the only stock with any sort of upward trend. DAL may be at a key support level and is worth watching.

IBM has yet to show any sustained confidence.

PETS is showing the same overall weakness that the stock market in general.

So this is my advice for the coming week. Wait for an improvement in overall market direction, look for opportunity (good buy points) and preserve profits and capital; and pick up a good boo

A Week In Review

Last week:

On Monday I detailed four watch list stocks reporting quarterly earnings. So, how did the stocks, and my analysis do?

I was hesitant to put any money into Micron stock before earnings. But, as you can see by my twitter feed, I did – but just a little bit. Good thing too, because they gave a mixed report and weak guidance which sent the stock down nearly 5%. It did manage to bounce back and I have recovered much of what I lost but still, I think I will hold off on any more purchases until I see a confirmed up-trend, above $35, in their price channel. Out for now.

Before Earnings
Before Earnings
After Earnings
After Earnings

GBX actually did better than I thought but the net effect has left the stock price and pattern relatively unchanged. Which means it stays on my watch list and not part of my portfolio.

After Earnings
After Earnings

APOL fooled everyone and just goes to prove that sometimes the market pundits get it wrong. I feel sorry for all those folks who bet on a continued uptrend and purchased all those call options.

Before Earnings
Before Earnings
After Earnings
After Earnings

AYI had most of my interest and most of my invested money which, like Micron, I purchased before earnings. They have had many favorable analyst upgrades, falling resource prices (metals and materials for building their products), and increased demand of LED products vs. traditional light bulbs.

Before Earnings
Before Earnings
After Earnings
After Earnings

I’ve sold half my position in AYI until I see what sort of pattern or direction the stock takes after this last breakout.  As I have mentioned before, many break out stocks have not maintained their breakout momentum over the past few months.  This has led me to modify my stock pattern investing strategy a bit by taking profits much sooner than I normally would.

Next Week:

There are no watch list stocks reporting next week so for my next post I will report on another trading pattern I have been trying out recently.

Momentum Trading!

Four Watch List Stocks Reporting This Week

Earnings Report

Micron Technology (MU) – January 7th, 2015

This DRAM and flash memory products maker is expected to report earnings growth of close to 16 percent year-over-year to $0.92 per share. The per-share earnings estimate has ticked up by $0.01 in the past two months.

Revenues for the fiscal first quarter are predicted to be 14 percent higher to $4.62 billion, relative to the same period last year. The consensus forecast has revenue up more than 10 percent and calls for a 7 percent gain in EPS.

Micron has a 97 IBD composite rating out of a possible 99 (higher is better), which is excellent, and is ranked 4th highest is its peer group. The group itself is highly ranked 27th out of 197 total groups (lower is better) as compared to the rest of the market.

Micron stock has enjoyed recent price target increases by various analysts as well.

All indications are that they will have a very good, if not stellar, quarter. The problem I have with the stock is the current price pattern.

mu

It currently is hovering right at top level resistance / support which it has been trying (unsuccessfully) to breakout above for the past several months. With the market currently under pressure, even a good quarterly report may not be enough of a spark to ignite a successful breakout. All it takes is a “cautiously optimistic” statement from them regarding their future performance and market conditions to send the stock down.

Prior to their last quarterly report, I liked their price then ($30) a lot more than I do now.

I may wait until after earnings to see which direction the stock price moves before investing.

Honestly, I really like this company and hopefully they will prove me wrong.

Greenbrier (GBX) – January 7th, 2015

Greenbrier manufactures and supplies railroad cars for the railroad industry. With oil prices down, and reserves up, oil companies, and more importantly shale oil companies, are producing less oil to ship out. This impacts the railroad companies, which in turn affects their plans for purchasing and outfitting improved railcars for the highly dangerous shale oil.

gbx

Despite my less than stellar outlook, Greenbrier stated last month that it has said it received orders for 14,100 railcar units for its Q1 as it diversifies its offerings. The orders are valued at $1.24 bil and included boxcars, hopper cars and tank cars for crude oil.

Greenbrier has and IBD composite rating of 77 and is ranked 2nd in its peer group. The group itself is ranked 177 out of 197.

Acuity Brands (AYI) – January 9th, 2015

Acuity designs, produces, and distributes lighting solutions, components, and services for commercial, institutional, industrial, infrastructure, and residential applications in North America and internationally. Despite their recent focus on developing products and solutions for the internet of things niche, most of their growth comes from industry and regulatory solutions for the LED market.

Analysts expect AYI to report double digit earnings for the 7th time in 8 quarterly reports. This growth is fueled by the LED market as more and more products, homes, and businesses move away from traditional light bulbs to the more energy efficient LED. Many see AYI as well positioned to take advantage of this both within the US and internationally. As a result, projections have maintained their positive outlook.

Add to this the recent price/cost decrease in the raw materials, metals, needed to develop these lighting and Internet of Things solutions and one can see how estimates have remained positive.

AYI has an IBD composite rating of 90 and is ranked 7th in its peer group. The group itself is ranked 56 out of 197.

ayi

Even though the chart pattern is similar to Micron’s, it may warrant a pre-earnings nibble if you feel that all these analysts, and myself, are right about the company’s earnings future.

Apollo Education (APOL) – January 8th, 2015

APOL is and educational for profit company and which has seen quite a remarkable turnaround from earlier in 2014. If you believe the volume of call / put options, the market thinks the rally will continue into 2015. Call volume out paces the put volume by more than 10 times. This means the bulls are betting on bigger and better (higher) prices for this stock.

apol

The stock recently broke out above a key resistance / support level, however, like many recent breakouts, has fallen back down to test support. If the option traders are right, look for a good bounce off this support level fueled by a good earnings report.

APOL has an IBD composite rating of 53 and is ranked 13th within its peer group. The group is ranked 89 out of 197.

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Disclaimer

* The stocks listed here are simply stocks from my watch list which happen to be reporting this week and my mention of them and or analysis is by no means complete, but rather an initial review, and is not meant as a purchase recommendation.

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