Sunday 10 March 2013
Few actually invest in an index, like the Dow, S&P, NASDAQ, etc. Most have individual stocks that may or may not be a component, yet what
everyone hears about are how the various indices performed. "The
Dow was up/down 80 points, today." "The S&P is near all-time highs."
The more pertinent question is, where is/are your stock[s] relative to
the market? If the indices are up but your stocks are down or not up
by much, what does that say about your portfolio?
Where the Dow and S&P are at/nearing historic highs, does that mean you should be long the stocks in your portfolio? Because charts do not lie, we decided to look at individual stocks to determine if one should
buy/hold/sell them. Which stocks? Warren Buffett is purported to be a
market "oracle," before he joined the Dark Side. Six of his stocks were
in the news last week, so we looked at three of the best performers.
Then, we randomly selected several more for an unscientific grouping.
What little we know about stocks is irrelevant because we know how
to read charts, and charts reveal what ALL participants are doing, from the most informed with the best and most expensive research, to
everyone else making a decision to buy or sell. We also know that
many investors overstay their positions. That may come from the fact
that Wall Street analysts are loath to issue "sell" signals for fear of
losing their jobs, even though it may mean investors are losing a lot of
Here is a look at 3 of Buffet's holdings and then a few other recent topperformers.
Wells Fargo Company, [NYSE], has been laboring to go higher during
the past three years. Where indices are at their highest levels in
recent years, WFC is not performing very well, and it is at resistance.
The daily gives a clearer picture. The last two bars are overlapping at
a resistance point. If price cannot get above the 36.50 area on strong volume and upside activity, this may be the best WFC can do. One
would want to be defensive, if long.
DaVita Healthcare Partners, [NYSE], is a trending market with higher
swing highs and higher swing lows. Last week's performance raises a
red flag with a new high, increased volume, but a lower close. At new highs, sellers were stronger than buyers, and the net swing high gain
is not much since last November's swing high.
The high volume weeks reflect strong buyers, but one needs to be just a little wary, here.
A look at the daily shows why the weekly chart raises a red flag. The high, 3 trading days ago, was an Outside Key Reversal, [OKR], a new
high, a lower low, relative to the previous day, and a low-end close.
The developing market activity is telling us sellers overwhelmed
buyers and took control.
This factual observation is confirmed next day when price gaps down
on sharply higher volume. Friday's small range is the market's way of
letting us know that the response from buyers was weak. With indices
doing much better, this could be a stand aside for longs, purely based
on observing market behavior.
IBM, [NYSE[, an old stand-by, and it is showing its age. While indices
have rallied well over the past year, IBM can only move sideways. Can
it go higher? Yes. Will it? That is a more pertinent question. Point "B"
failed big time when it retested swing high "A." Right now, "C" is
retesting the upper resistance level. How is it faring on the daily?
The smaller daily ranges are the market's way of showing that demand
is weak, otherwise, the ranges would be larger. Sellers have not
stepped in, but they could be waiting for the rally to go just a touch
higher. How price reacts to the 212 area will be an important tell for
IBM's future. If it continues higher, fine. If not, the market is sending
Ubiquitous GOOGLE, [Nas], is a market in an obvious up trend showing no signs of any weakness. This is a market leading the NAS index.
Smaller ranges are not necessarily bad, as long as they maintain
upward momentum, and what corrections there are, are relatively
small, like the end of February and last week. When you compare
GOOG with the first three stocks, you can see how well a strong price
move leaves little guesswork about being long, or not.
LinkedIn Corp, [NYSE], is another stock that is not sending mixed
signals or raising red flags. Developing market activity is telling anyone
watching that this market is healthy.
All one has to do is observe the corrections since the strong breakout, last month. There is very little give-back, telling us buyers are in
control, very much in control. Also note that very little need be said
when a stock is doing so well relative to the rest of the market.
Celgene Corp, [NAS], is probably the strongest of the group. All we are doing is looking at individual stocks as they compare to the various
indices from which they came. Last week was an impressive one: a
wide range and strong close.
It is interesting that some of the stronger markets are NAS stocks, the weakest index, relative to the S&P, and DOW. The NAS has been
struggling to recover the 50% retracement of its range from the 2000
high to 2002 low.
What this little exercise does is put an individual stock as measured
against an index to see how it is performing. One can look, and within
a few minutes make a determination about the overall condition of a
stock as a candidate to be held, like the last three stocks, when
compared to the relative performance of the first three.
What we did not do is show any stocks that are near their lows or well under 50% of their last year's range. Those stocks do not belong in
one's portfolio, and if anyone has any, well, that ship has sailed, not to sound callous, but the market gave signs of weakness a long time ago,
and if one chooses to ignore them, the lessons can be expensive.
[We can do a multi-time frame chart analysis of a stock, for a fee, if
anyone is interested.] [email@example.com]
A mistake many make, when assessing a poorer performing stock is to
see how the market is rallying, overall, and then "hoping" that stock
will "catch up." Markets do not work that way. This is an easier way
to make a factual assessment based on what the market has to say
about a stock you may own. It takes away the emotional element of
being tied to a decision made that may not be doing all that well.
One thing about the market, it never lies.