Archive for December, 2009
The Week That Was: 12/21-25/2009
December 26th, 2009 | 
Author: The DOW continues in its sideways channel and moved up to the top of that channel this past week on weak volume. The trend is tired and ready to retrace. The stochastics has moved back into the overbought area and the index is at the top bollinger band. I feel that this move is merely end of the year window dressing and we are overdue for a pullback. If we break down out of the channel, look for 10,100 as the first level of support followed by 9700 – 9800. The upside resistance appears to be very stout and in my opinion, not likely to be challenged soon.
The SPX closed above the recent channel top but on very unremarkable volume. We shall see if the index will continue higher, but I feel that any upside move will be short lived as we are due to pullback soon. The “January Effect” may allow the small caps and value stocks to shine, but that should not carry beyond the end of January. I don’t feel that the pullback will be massive, maybe 5 to 10 percent.
The COMPQ convincingly broke to the upside with apparently no signs of indecision. However, it was not a quality move based upon the lack of participation as measured by volume. It will be interesting to see if we get follow through into 2010. My next comments will be coming to in the New Year. Stay in tune with the market and follow it. If you go where the market goes, you will prosper in 2010. Best, Robin
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Technical Talk: Head & Shoulders Chart Pattern
•The Head and Shoulders pattern is a bearish reversal that is found at the top of a trend and is comprised of three tops.
•The first top is the left shoulder and is usually formed on increasing volume.
•The stock then pulls back to form a low and then thrusts higher than the first shoulder to form the head on lower volume.
•The stock then pulls back again to form another low before moving up for one final time to form the right shoulder.
•The downside trigger occurs when the stock pulls back and breaks the trend line drawn between the two lows, called the neckline.
Head and Shoulders Psychology
•The head which is a higher high is formed on diminished volume which shows a lack of conviction on the move.
•The stock then forms the right shoulder after the second reaction low and volume picks up as the stock breaks the neckline.
• The second reaction low between the Head and the right shoulder forms what amounts to a double bottom with the first reaction low between the first Shoulder and the Head.
•The stock moves down off of the right shoulder and breaks the neckline (double bottom).
The Week That Is To Be: 12/28/09-1/1/2010
ECONOMIC REPORTS
MONDAY 12/28
None
TUESDAY 12/29
Case-Schiller 20 City, Consumer Confidence
WEDNESDAY 12/30
Chicago PMI, Crude Inventories
THURSDAY 12/31
Initial Claims, Continuing Claims
FRIDAY 1/1
Market Closed for New Years
EARNINGS OF NOTE
MONDAY 12/28
None
TUESDAY 12/29
None
WEDNESDAY 12/30
None
THURSDAY 12/31
None
FRIDAY 1/1
None
Stock Market Insights: Valuation Metrics continued
Continuing our discussion from last time, the next metric of significance is the PEG (Price Earnings Growth) Ratio. While one can measure the value of a stock based upon its’ PE as discussed last week, it is valuable to know if the company is growing and that is what the PEG Ratio tells us. The PEG equals the PE divided by the annual Earnings Per Share growth. The resulting number will project an undervalued company if that number is low. The PEG can be represented in various time periods such as annually or for a longer period such as 5 years. The measure is comparative so one can derive perspective in terms of valuation when comparing the company against its’ own past performance as well as comparing against other companies in a similar industry or sector.
Another metric used for valuing a stock against the market as well as itself is Price/Sales. The formula is the stock’s price per share divided by its’ revenue and is usually represented by the TTM (trailing twelve months). This measure is more accurate when comparing companies in similar industries and sectors. The measure does not account for how efficiently the company is operating because expenses are not included in the calculation.
Finally, this week we will touch upon one additional valuation metric, Price/Book. This measure compares the Market Value of the company as reflected by the share price of the stock divided by its’ Book Value which is defined as its’ Total Assets less liabilities and Good Will or blue sky value. If the company exhibits a lower number, it can be indicative of an undervalued company although, further investigation may reveal that the company may have internal problems.
We hope that your Holidays have been joyful. Best, Robin
The Week That Was: 12/14-18/2009
The DOW is still channeling. The ADX shows the trend to be without further impetus. Overhead resistance is strong and even with extaordinary volume on Friday, the best that we could do was a “Spinning Top” at the lower end of the range. I think that the index is getting ready to pullback. The first clue would be if it broke 10,170. There are several swing highs and lows that could act as targets if the DOW began to retrace. The primary downside target is 9100. I really feel that the next 1000 points to the upside are going to be tough to achieve.
The SPX tells a similar story as the DOW. The downside target is 850-950 if the index breaks down. We are stalled out to the upside from the consolidation trading from 2004 at the 1125-1175 level. Should the index break through that area, the next target would be 1325.
The COMPQ could retrace to 2025-2050 if it breaks down out of the current channel. The upside target is 2375 – 2550. Stay nimble and follow the market. When the indexes break out of their sideways trading (and they will) be ready to take advantage because it should be a good move. I am inclined to think that the move will be down in a correction. Keep in mind that healthly markets correct so let it do what it is going to do and be there to profit. Robin
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