Heyer Capital, LLC

investment management and timely advice from a local CPA (Fox Valley, Wisc.)

Archive for May 2007

revisiting the 21 day average

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I encourage you to set your chart preferences to show the 21 day moving average (or 20 day average on Yahoo!). It’s uncanny how often I see stocks that find support at the 21 day average.

I wouldn’t say use a 21-day touch as an entry point into a stock, but more as a reference to the health of the stock. If you own it, and it falls to and holds the 21 day, be comforted. If it drops lower than the 21 day, look for where the 50 day is.

If I had to characterize these stocks, let me suggest that they are the ‘hip’ stocks of the market. In other words, there’s a fair amount of ‘momentum’ money behind them.

Here’s two examples. These happen to be big-cap stocks, which the market seems to be favoring now.

CVX GS 21 Day

Written by heyercapital

May 29, 2007 at 9:13 am

Posted in charting, stock ideas

Bullish pullbacks

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Ok, ok. How could a stock retreating actually be bullish? When it hints at further upside. Here’s an example:

Koppers Holdings (KOP)
KOP - Koppers

The Box A highlights a broad four month flat base. (Keep your eye out for stocks that are consolidating in price while growing their earnings. ) The breakout into new high ground at Point B is accompanied with heavy volume (Point C) a very good sign.

The stock made a nice advance over the next two weeks before starting an orderly retreat. Note the stairsteps at Point D accompanied by decreasing volume at Point E. Even the big downward spike at Point F was the result of volatility at the opening and the stock climbed up the rest of the day.

It’s helpful to note that the stock fell as low as about $27 at that opening. That $27 was important because that was about the top of the base from which that the stock had just emerged. The resistance at the top of the base became support as the stock advanced. This happens often enough in the market that you should include it in your quiver.

This example is also a case in point in why you want to keep a stock on your watchlist even after it breaks. Don’t hang your head low about “missing” an opportunity. It will knock again.

Written by heyercapital

May 22, 2007 at 3:29 pm

intraday resistance

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**Notice: I personally own shares in this stock (as does a client) at the time of this post.**

I noticed mid-day that Accenture had been hitting some serious overhead resistance at exactly $39. Aha… time to research.

The three month chart (click to expand) shows that the stock has been middling along around $38 and $39. If figured that if the stock made a significant move above $39, it would also take out the recent high, shown at Point A.

ACN three month chart

If I had only been looking at an intraday chart, I would not have seen the context of where a stock is in its broader trend. Now let’s look at the intraday chart.

ACN intraday

See how for three hours the stock tries to move up through $39? Sometimes it trades right at $39, sometimes hovering at $38.90, but the market is finding a balance between buyers and sellers. Stocks like to move, not balance.

I put in a limit order to buy at B as the stock advances. It doesn’t jump further. Hmmmmm. Do I dump it, pocket lunch money profit, and move on?

Through constant retrospection (one of those 20 rules I mentioned in an earlier post), I find that too often my analysis is right, but I sell too quickly. Lesson learned.

So I sit tight and run some errands. Not to be glib, but these moves are good to see.

Trade away.

Written by heyercapital

May 16, 2007 at 2:45 pm

Posted in charting, stock ideas

earnings growth has your back

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If I could give you one investing lesson to take with you the rest of your life…well, there’s really about 20 of them… but if I had to give you just one (today) it would be to remember that good things happen to stocks with outstanding earnings.

They get buy out bids, they get the expanding P/E multiples, their earnings stream makes them less dependent on expensive debt or other capital financing. It’s good to make money faster and faster.

Sounds wildly simplistic right? But you’d be surprised how many people like to invest in stocks because the name sounds familiar, or because they themselves buy that company’s product. Earnings, schmernings.

Keep the wind at your back and in your sails. Strong, solid earnings growth is that solar wind.

Written by heyercapital

May 16, 2007 at 2:12 pm

Posted in charting

Amazon – the River of Trickling Returns

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Amazon has gotten quite the well-deserved knock over the yearsof being a sinkhole of hopes and capital instead of a fountainhead of profits. Lately they seem to have decided to stop pouring cash into developing broad new product lines and, well, sell stuff profitably. In Q1 they smashed Wall Street’s consensus earnings estimates, and the stock leapt $18 the next day. Why such a big move?

Allow me to hypothesize that the big move was due to “the shorts.” Yes, those evil, foul, anti-American, pessimists who profit when a stock falls in value. (I say the above in jest, of course. A market must function fluidly in both directions.) For the past six month, the number of Amazon shares that had been shorted rose to where it would take ten days of average volume to buy back all the shares that had been shorted.

A bit of an aside about shorting. A short investor must borrow shares from his broker (who in turn gets the shares from someone’s margin hypothecated margin account). Those borrowed shares are sold at the market, generating cash for the short investor. If the shares fall in value over time, he can buy back shares and return them to the broker. Because he sold first, and then bought shares back at a lower price, he earns a profit. IF the shares had moved higher in price, he would have to buy them back at a higher price, losing money. Hence the big move in Amazon….

When Amazon reported such a huge turn in profits, Wall Street realized the company’s outlook had changed and many shorts had to re-evaluate their risk-reward stance. That and the trading desk manager started screaming on the floor, “Who is the #@$@#$ that is still short @#$#@$ shares of @#$@#$%$#@ Amazon. We’re losing our @#$@$#@$ shirt here! Cover these @#$@#$@#$ or else some unlucky @#$@#$@#$ is going to get their @#$@#$@# fired by ten o’clock.”

That’s why Amazon opened nine dollars higher and moved higher all day. Investors who had owned Amazon offerred their shares at these higher price, but the demand for shares was greater. It took an increasingly higher price to entice more shares to the market. The buying pressure even continued the next day, as the stock opened about where it closed and pushed $6 higher and closed near its highs for the day.

Amazon - the River of No Returns

Now, the $64,000 question: how could you make money with this? Could you have seen it coming? We have the benefit of retrospection, of course. Let’s learn from this.

Amazon had a low EPS rank from Investor’s Business Daily before their earnings surprise. It would NOT have been on my screen ahead of the big announcement. But somebody on the Street was watching.

Points A & B show higher lows and higher highs. That is a classic indication of a change in trend. Note the long saucer base for the past six months – also a good sign. It might be just my eye, but I detect a cup around B.

Point C was a big clue that something was afoot. The jump that day was a decent percentage move into a new 52 week high. However, the big jump at Point D is what led the financial news pages of the day. At that point, the best way to play it is to go long and let the shorts’ pain provide the profit as they buy back into the market.

If you want hair on your chest, another way to invest intra-day is to use limit orders to buy when the stock again resumes moves into new high ground. Look for a jump into new high ground at Point E if AMZN finishes its recent consolidation.

Written by heyercapital

May 15, 2007 at 9:04 am

AAII survey versus the market

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The American Association of Individual Investors has been surveying its members for decades, and when its findings move to an extreme level they are an interesting study.

Right now their survey is registering high “bearish” levels. Two views of thought: 1) individuals are still sitting on cash, the fuel to propel stocks even higher, and 2) individuals (who are savvy enough to join the AAII) are content with what they now own and are just holding their market exposure instead of actually “bearish/afraid.”

As always, such secondary sentiment indicators should take a back seat to your study of what really matters: prices.

Written by heyercapital

May 4, 2007 at 3:17 pm

Posted in Business/Econ