What will this coming week be? After last week’s volatility, will we see another week of swings? There will be fewer companies reporting their earnings but I will be careful with the outlook reports of Lowe and GM on Monday. A good report for Lowe will confirm the bullish about the US housing market. GM outlook will confirm the recovery story since automotive is one of the key area of the US economy. Dell and Home Depot will be the other key earnings I will look out for. This week will have economy reports for Retail Sales on Monday, Industrial Production on Tuesday, CPI and Housing Starts/Building Permits on Wednesday and Existing Home Sales on Friday. I will also be following Bernanke’s speech about US economy outlook on Monday. I expect the focus to be on US dollar and the market will probably be driven by the direction of the currency after reading from US Secretary of Treasury Mr. Geithner’s message during APEC that US is committed to a stronger USD. This could be his first hint to manage future increase in interest rate and I will be listening to Bernanke’s speech for any reference to the monetary policies. Let’s see how both the Cycle Trend and technical forecast for the coming week;
We can see from the Cycle Trend that US DJIA will still have some more room for upside movement for the week. On the candlestick formation, a bullish three outside up pattern has formed to confirm the bullish engulfing pattern of the last session and the index reversal. The reliability of the pattern is very high but I am still waiting for the confirmation of a white candle this week. With the economy stabilizing and market on the edge to read between the lines of Bernanke’s speech to predict the time-frame of interest rates increase, the strategy of buying at dip and sell at target will still apply to this week’s trade.
The stocks selected remain unchanged for the three stocks selected last week with the exclusion of TAP. The only inclusions are Chevron Corporation (CVX) and Ensco International (ESV).
Chevron Corporation (Chevron) manages its investments in subsidiaries and affiliates, and provides administrative, financial, management and technology support to the United States and International subsidiaries that engage in fully integrated petroleum operations, chemicals operations, mining operations of coal and other minerals, power generation and energy services. The stock is tied to oil-related equipment and data, to oil fields, pumps, and refineries, and to more buildings and employees, among other things. It's unlikely that those kinds of assets will suddenly become worthless. The company has strong operating cash flow and free cash flow. Its last 3 years operating income was positive. So the fundamentals of this stock are strong. For the technical, cycle trend indicated an uptrend but the price is trending towards the resistance of the upper Bollinger band. With the candlestick forming a black spinning top, I would rather wait for the further confirmation before entering to buy this stock.
ENSCO International Incorporated is an international offshore contract drilling company. The Company engages in the drilling of offshore oil and gas wells in domestic and international markets by providing its drilling rigs and crews under contracts with major international, government-owned, and independent oil and gas companies. The company’s operating profits for the last three years was consistently positive and growing. The operating and free cash flows are strong for the same period. The little concern I have is the reduction in short term debt but the increase in its receivable for the last financial year. As for the technical, Cycle Trend is positive and forecasted an upside gain for the week. However, its candlestick formation is a black bearish engulfing pattern with a potential reversal change in trend. I will keep an eye on the on futures trading to get preliminary hints about the direction of the market. Related news, events, economic data, and the world stock markets will also be closely followed prior to and during the confirmation week to decide if this stock will be traded, since cycle trend is positive.
As for NOV, MIR, MGLN, there are no changes to its fundamentals and I will only look into the technical. NOV’s cycle trend is still showing an uptrend gain for the week. As for candlestick formation, a black spinning top was formed, representing indecision between buyers and sellers. I will be closely monitoring the daily candle confirmation for a white candle formation to enter to buy this stock. MIR cycle trend is forecasting a downside decline for the stock and its candle formation of white spinning top represents complete indecision between the bulls and bears. For this stock, KUTE is recommending a “Hold”. As for MGLN, the cycle trend indication is upside gain. However the price is trading near its Bollinger resistance and candlestick formation is a white candle without a significant signal to buy or sell.
My trading rules to select the stock to trade daily; if the selected stocks’ price is at or below Friday’s close and cycle trend is positive with candlestick formation signaling neutral, indecision or buy indications. The stock must also not be testing its Bollinger resistance. For my daily trading, I will be looking only at NOV and MGLN because of the positive cycle trend indications and the market’s indecision.
Have a great trading week ahead.
Francies Cheng
BBus MAppliedFinance
BBus MAppliedFinance
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