Thursday, July 30, 2009


The DoctoRx method of longer-term technical analysis is simple. It requires no computers, no protractors, no expenses. It even sometimes appears to work!
The Capital One (COF) chart shows a long-term convex upward uptrend through about 2006. In the bubble era beginning around 1998, you can see that it got a little out of phase upward, and then in the second dip of the 2000-2003 bear market, that "out-of-phaseness" had a mirror extra downward movement. But upward momentum was waning. The stock's relative momentum vs. the market peaked around 2006.
This company did not take the risks of a Fannie or Freddie, or an AIG, but it needed rescuing by the $23.7 Trillion intervention by the Fed and the Feds. The chart shows a stock in long-term trouble, with the convex downward trend unbroken despite a tripling of the stock price since the (? temporary) bottom this winter.
This stock is a "Don't buy! Don't buy!"both in Cramerica and in DoctoRx-land.
On the other hand, Econblog Review has praised Ross Stores (ROST), also shown above. The chart is completely different from COF. Even at the bottom last fall, the stock had not broken down on the long-term charts. It is not up as much from the bottom as COF, but it is now trading at its all-time high. No short-term or long-term holder of ROST has lost a penny.
Other stocks praised by EBR for similar chart patterns and other positive corporate attributes are National Presto (NPK), Teva Pharmaceuticals (TEVA) and McDonald's.
Nothing is guaranteed, but strength begets strength in part because corporate cultures tend to have a continuity. Thus in my field of pharmaceuticals, J&J and Teva go from strength to strength, while lesser companies falter. In addition, industries may have a life cycle, such as autos or steel, but even within challenged industries, look how the prior chart strength of Honda (HMC) and Toyota vs. GM years ago presaged the current situation.
All the above stated, ROST and Teva are well above their 200 day moving averages. I have taken my profits in them and am waiting for buying opportunities where it takes more guts to buy than now, when the charts look so strong.
Two final notes. One is that this site does not provide investment advice. The other is that a long-term look at the S&P 500 (a nearly 60-year chart) does not look so hot right now. Gold and the 10-30 T-bond complex look better; while yours truly is long them both, cash equivalents continue to look mighty fine. Hard to lose there!
Copyright (C) Long Lake LLC 2009

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