It will be a very interesting week for the market. I was in my bar drinking last night and a couple of my friends asked if there is really a recovery given that the US unemployment is hovering near 10%. I am pretty sure there is, given that employment growth comes last after a recover starts. So how will the markets be this week? There are three big economic events coming up: Auto sales. The major manufacturers will report on Tuesday; the Federal Reserve meeting. The Federal Open Market Committee, the central bank's rate-making body, will decide Wednesday afternoon whether to leave the target for its key federal funds rate at 0% to 0.25%; and the monthly unemployment and payrolls report. This comes Friday before the market open and is the month's most important economic report. Also, there will be 92 S&P500 companies and 2 DJIA companies reporting their earnings this coming week.
Let’s look at the Cycle Trend and Candle technical for the market this week.
As we can see from the chart, the market is still looking for direction and will continue to trade broadly within range and will likely decline over the week. Cycle Trend is indicating a decline and the candle seems to confirm the cycle charting. While I am not expecting the Fed to increase its interest rates, I am not too optimistic with the monthly unemployment and payrolls report. With the market still sensitive to reports and looking for direction, I will continue to my buy at dip and sell at 10% target tactical plan.
The KUTE system has filtered the following fundamentally sound companies this week; SKX (Skechers USA Inc), DRIV, WTS, CAH, OSG, BHI and NBL (Noble Energy Inc). Dropped from last week’s list are PTEN, MLI, and EIX. It will be easy first decision for me, i.e. to sell PTEN when the markets open this week at my target.
Let’s look at the filtered stocks. The betas for the stocks are as follows: SKX 2.37, DRIV 1.46, WTS 1.11, CAH 0.84, OSG 1.53, BHI 1.57 and NBL 0.91. Based on the macros and the tactical plan to trade the stocks’ beta, SKX, OSG and BHI look interesting. I may consider adding CAH to the 30% of the 30-20-50 for longer term holding if the stock’s Free Cash Flow and Operating Income is in line with KUTE’s requirement. Let’s look further for the 2 new companies included in the selection this week.
Skechers U.S.A., Inc. (SKX), incorporated in 1992, designs and markets Skechers-branded contemporary footwear for men, women and children under several lines. In addition to Skechers-branded lines, the Company also offers eight uniquely branded designer, fashion and street-focused footwear lines for men, women and children. These lines are branded and marketed separately from Skechers and appeal to specific audiences. Its brands are sold through department stores, specialty stores, athletic retailers and boutiques, as well as its e-commerce Website and its own retail stores. Skechers operates 84 concept stores, 83 factory outlet stores and 37 warehouse outlet stores in the United States, and 16 concept stores and two factory outlets internationally. Most analysts are bullish with the stock amid the better than expected earnings and the drop in inventory and they are expecting the sales to increase for the near future. However, I am personally not comfortable with the decline in net income and inconsistent cash flow from operation with the company reporting a negative cash flow last year. Taking into capital expenditures, there is no free cash flow for equity owners. With both the weekly Cycle Trend showing a decline and a bearish engulfing candle, I have decided to give this stock a miss.
Noble Energy, Inc. (NBL) is an independent energy company that has been engaged in the acquisition, exploration, development, production and marketing of crude oil, natural gas, and natural gas liquids (NGLs). The Company’s activities include geophysical and geological evaluation and exploratory drilling on properties, for which it has acquired exploration rights. Most analysts have upgraded NBL to buy and the company has maintained a healthy financial and liquidity position. I am comfortable with the company’s consistent gross profit, operating income, positive operating and free cash flows. However with the company’s beta at 0.91 (with macro forecasted to decline) and with Cycle Trend showing a possible decline combined with more bears than bulls as shown in candle, I will keep the stock in my review list and will monitor closely.
BHI Cycle Trend is forecasting a decline and with the candle still bearish, I will also give it a miss. CAH’s Cycle Trend showed upside potential this week but from its candle it seems that the stock is still looking for direction confirmation with a possible decline in the coming week. With the stock beta at 0.84, I may consider to buy this stock. I am still uncomfortable with the technical of DRIV. OSG candle represents a selling pressure this week though the Cycle Trend indicates a possible advance for the week. With many analysts downgrading the stock and with its beta at 1.53, I will be careful with this stock.
So it looks like an easy week for me staying at the sideline. I will be looking at opportunity to sell PTEN and buy CAH and monitor closely the technical of NBL and OSG if it touches the first support at $35.20. I just got to remember not to trade if there is no signals at all. It's better to be safe than sorry.
Have a great week ahead.
Francies Cheng
BBus MAppliedFinance
BBus MAppliedFinance
ps. If you need the charts for the other mentioned stocks, please drop me an email...it's quite troublesome loading all here ...
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