Dillards- Consumer Services
Dow Chemical-Basic Industries
4. Sandisk- Technology
5. Tenet- Health Care
In the post before this, we selected the stocks based on their fundamentals. [please read previous post]This post will look at the technicals of some of the selected stocks. The purpose is to show that there is a time to buy, and a time to stay out of the markets. With globalization and the proliferation of high frequency algorithmic trading, all financial market are highly correlated, and the average Beta of stocks has risen. It is probable that 70-80 % of a stock's price movement is dependent on the general market no matter how strong its fundamentals. We use the Rahul Mohindar Oscillator system which is available in the latest version of MetaStock, the technical analysis software to illustrate this point. Technical Analysis is not magic and does not have prediction value. But the sophistication of present day technical indicators provide very useful visual analytics. The RMO has three Rules for calling a Buy and a signal is only valid when all three rules are fulfilled.(1) The Oscillator [top Green] must be in positive territory i.e. greater than zeroAND (2) The price chart must be in Bulllish zone i.e. Blue and not Red AND (3) The most recent Buy arrow must be Blue. [For Sell signals, do the opposite].Take a look at the images above starting from top:1. S&P500- Green oscillator is about to go below zero. Most recent arrow on price chart is Red. The beginning of the Bear zone?
2. Dillards has been red for some time although its valuation is -41 % and the EPS Surprise % is a high 107 %
3. Dow Chemical has also only recently gone into the Bearish zone.
4. Same for Sandisk the tech stock
5. Tenet is the same story, only worse.
So, whatever the fundamentals, there is a time to buy and a time to stay out of the market. The price movement of nearly all stocks on NYSE and NASD are highly correlated with the market (Beta >2) and in fact, although I don't have the space to show, the RMO of nearly all markets (Shanghai Exchange, Hong Kong, Singapore, Commodity Research Bureau Index, US Dollar Index, 10-year Treasuries, Gold) paint a similarly depressing picture. Gold and Treasuries are not yet going down, but at the same time they are not exactly moving up too. It may be a deflationary outlook, but with the quality of U.S. debt in doubt, Bond yields may yet go up. As for currencies, all the major currencies: Euro, USD and Yen have a lacklustre economy behind them and any one currency's rise is more by default and being the best of the worst by rotation than for any substantial reason. The big question is whether the Asian economies (China, India, South-East Asia) have enough dynamism to form a bottom for the rest of the world. In that regard, it may be useful to monitor Shanghai, Hong Kong and Singapore markets for signs of a bottom. * Baltic Dry Index is going up, but it is too volatile on a day to day basis for it to be a meaningful indicator. Note# In the RMO, the third window from the top shows a Blue line and a Red line. If you are Long on a stock and a bar crosses the Red line on the way down, it is a Stop Loss signal. Looking at the Stop Loss Indicator of the S&P500 and all the stocks, we should have been out of the market some time ago.
