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posted on 18 October 2016

Technical Thoughts: Great Chart Ideas

by Jeff Miller, A Dash of Insight

Each week Felix and Oscar host a poker game. We listen in on current trading ideas in the few minutes before the game starts. They like to call this their “Stock Exchange." I am the only human present, and the only one using fundamental analysis. Their methods are excellent, as you will learn if you join us for a few weeks. Since the time frames and risk profiles differ, so do the stock ideas.

wb.caption

Do the markets predict future events? Or should you use fundamentals to predict the markets?

That is an ongoing debate at the Stock Exchange.

This Week’s Ideas

Our technical experts have some very aggressive ideas this week.

Felix

I look for long-term themes, and I have a great one this week. This week I am revisiting technology, specifically Weibo Corp. There are not too many social media platforms that are available for trading, but this is one that is (we hear) popular in China. It sounds pretty interesting and maybe (if not, already) will show up here soon.

Just look at the chart. What a strong momentum play!!

Our question for this week’s post is from Sedona7 of Seeking Alpha, as follows:

I really appreciate your work Jeff (and group).

Felix (and Jeff), I am wrestling with my current position in BMY … should I stay or should I go?

Felix responds:

BMY is on my sell list (a negative rating). There are many better choices.

[Jeff] The 20 multiple is pretty rich for the stodgy recent growth rate. 3% dividend is OK. If the expected earnings growth for 2016-17 comes through, it is probably fairly valued. I agree with Felix that there are better choices.

[Felix] Please keep your questions coming. I could use the overtime pay!

Oscar

It seems like every week that we have some crashing, dynamic stock that we can liken to a pinch-hitter or an offensive lineman. My choice for this week is a change of pace. Take a look at the moving averages on DDD below. This reminds me of the long, smooth strokes you see from the US Olympic Rowing team. Sure, it may not be as exciting as the MLB Division series - but it sure is pretty. Here we’ve got steady, sustainable growth from a major name in the broader sector of 3D printing. What’s not to like? The chart is very encouraging. Breakout coming?

[Jeff] With a PE over 40, this might be breaking hearts rather than breaking out. This makes sense only as a speculation.

[Oscar] I am good at speculating.

Holmes

I am the rebounding specialist. Here is a “fetching" opportunity, Dexcom (DXCM) hit an all-time high around 97 in September of 2015, sold off to a low of 53 before rebounding back to 95, this most recent sell-off gives us a nice technical entry into this name looking for a run back to 95, with a stop around the 200d MA (75.17).

[Jeff] Do you know what it means when you look for the multiple on a stock and see “NMF?"

[Holmes] What’s a multiple?

[Jeff] It stands for “not meaningful." You see it when a stock has no earnings. It is important for determining value.

[Holmes] I get paid nicely for stock rebounds whether there are earnings or not. The chart tells the story.

Athena

I have a very interesting choice this week, Air Products and Chemicals (APD).

[Jeff] That has a familiar sound. Didn’t we just discuss that pick?

[Holmes] Yes! It was my choice last week. She is copying. I was stopped out with a small loss.

[Jeff] I did not care for it last week, and I still don’t. The price is a bit lower, but not low enough for me.

[Athena] I need not copy from humans and dogs. The Holmes rebound play did not work. APD fits my style just fine. My average holding period is about four months. We can revisit this after some time. Here is the updated chart.

Questions

If you want an opinion about a specific stock or sector, even those we did not mention, just ask! Put questions in the comments. Address them to a specific expert if you wish. Each has a specialty. Who is your favorite? (You are allowed to choose me, although my feelings will not be hurt very much if you prefer one of the models).

Cast of Characters

Felix is fussy, precise, and very cautious. He looks for what is working, but it also must have upside potential. He is an investor who thinks long term. Felix will not usually announce new picks, but he will answer questions, saying what he thinks about specific stocks. He will also comment on favorite themes and sectors.

Oscar is naturally optimistic and a bit excitable. He definitely likes to go with winners, and focuses on a one-month time frame. He trades either sector ETFs, or a basket of stocks (equally weighted) that reflect a sector. Oscar will mention a favorite sector each week, and will also answer questions about sectors.

Holmes is a trader, but a cautious one. Holmes emphasizes asset protection through profit taking, stops, and trailing stops. He is careful in selecting new positions, and generally looks at an intermediate time frame. While he does not know the definition of “mean reversion" he loves rebounds! There is no set holding period, but two or three months is not unusual. Holmes will tell us one stock recommended that week. For those who sign up for his email list (no charge, privacy respected, holmes at newarc dot com) he will report exits with a one-day delay.

Athena trades more frequently than the others, but still limits risk. Her inspiration helps to find good ideas. Her excellent quant skills find attractive risk/reward opportunities. Her wisdom leads her to exit trades that are not working. Athena will provide a new idea each week.

Jeff usually has some comments about stock or market fundamentals. Unlike the other witty participants, he sounds like an old prof.

An Important Note to Readers - from Jeff

All of the characters (except me!) are models, carefully engineered and tested by one of the leading developers of the last thirty years. I humanize them to make it easier to understand the characteristics in their design. I always remind readers that my posts are informational, not investment advice, and that is especially true here. While we are trading based upon all four models, we are always watching and can act quickly when necessary. The models are not suitable for all investors. If you like the approach, reach out to us (info at newarc dot com) and we will provide more information.

The conversation is light-hearted, but the stock analysis is serious. We own positions in each of the stocks mentioned.

Finding great stock picks need not be boring. Please enjoy the banter and join in.

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