The sellers came in again during late trading on Monday so most of the major averages closed below the day's highs. The market internals were solidly positive and acted stronger than prices with advances by a 2.5 to 1 margin.
This action has caused further improvement in the daily Advance/Decline lines but the volume analysis is still lagging as I discussed in last week's market wrap. It does look like a short-term bottom is forming, and the next pullback should be a buying opportunity.
An important part of my weekend analysis pattern, in addition to doing a number of scans as discussed yesterday, is to read Barron's. In the most recent edition, there was an article where four successful stock pickers were asked which stocks they thought had the "best possible chance of doubling in value over the next five years."
Since I feel fortunate if my "crystal ball" can see out six months or a year in the future, I am always interested in these long-term forecasts. The six recommended stocks are: Bank of America (BAC), Hewlett-Packard (HPQ), ITC Holdings (ITC), Oracle (ORCL), Sprint Nextel (S), and Steiner Leisure (STNR). Of course, Sprint Nextel (S) shareholders just approved the buyout terms from Japan's Softbank.
A look at the monthly chart of one pick from each analyst will give us a better idea of the long-term outlook for each stock. One stock I had not heard of looks especially attractive.
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Chart Analysis: Bank of America (BAC) and Oracle (ORCL) are the two picks from Kevin Grant, who manages the top ranked Oakmark Fund (OAKMX). In late February 2009, BAC hit a low of $2.53 and then made a secondary low in November 2011 at $5.03.
- In January 2012, a monthly high close doji buy signal was triggered, and it hit a high last month at $13.99.
- The next major monthly resistance, line a, corresponds to the early 2011 high.
- The monthly relative performance moved above its WMA in October 2012 and the long-term downtrend (line c) has just been broken.
- The OBV saw a strong surge in 2009 but the OBV dropped below its WMA in 2010.
- The monthly OBV turned positive again in 2012 as the resistance at line d, was overcome and it is above its WMA.
- The weekly and daily OBV are both below their WMA so the multiple time frame OBV analysis is mixed.
- The quarterly pivot is at $12.72 with further support at $12.39-$12.00.
- HPQ tested its monthly starc+ band in March and closed June back above its 20-month EMA.
- HPQ had a high in April 2010 at $54.75 and a low of $11.35 in November 2012.
- The 38.2% Fibonacci retracement resistance is at $27.85 with the quarterly R1 at $27.51.
- The monthly downtrend, line e, is now at $35.20, which is just above the 50% retracement resistance.
- HPQ broke its uptrend in the relative performance in May of 2010 signaling that it was no longer a market leader.
- The three-year downtrend (line g) in the RS line was broken in February, which is a positive sign.
- The OBV is holding well above its WMA but still below its downtrend, line h.
- The weekly and daily OBV are both above their WMAs.
- The quarterly pivot is at $23.29 with gap support at $22.90 to $21.55.
ITC Holdings (ITC) is a pick from Morningstar's Matt Coffina, editor of its StockInvestor newsletter. ITC is a $4.68 billion electric utility company that currently yields 1.70%. It had a high in April of $93.69 as it tested its monthly starc+ band.
- It had a low of $84.72 in June, which was a drop of 9.5% from the highs.
- The monthly starc+ band for July is at $98.89.
- The relative performance has turned up from its support, line a, and moved above its WMA.
- The monthly OBV rallied form support (line b) late last year and moved above its WMA in February.
- The daily and weekly OBV are both above their WMAs.
- There is minor support at $89-$89.50 and then at $85.50.
- The monthly chart shows that it closed June just below the long-term monthly resistance, line c, at $54.50 and this level was exceeded on Monday.
- The upside targets from the chart formation, lines c and d, are in the $75 area.
- The relative performance dropped slightly below its long-term uptrend, line e, this spring but closed June back above its WMA.
- The monthly on-balance volume (OBV) broke out to new highs in June as it preceded prices.
- The weekly and daily OBV are both strong as volume last Friday was ten times the daily average.
- The monthly pivot is at $51.92 with the quarterly pivot at $47.04.
What it Means: Of the four picks I analyzed, Steiner Leisure (STNR) clearly looks the most interesting technically but it trades fairly thin, so as always, limit orders are must.
How to Profit: For Steiner Leisure (STNR), go 50% long at $53.24 and 50% at $52.08, with a stop at $49.77 (risk of approx. 5.5%).
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.