Wow, that was a sad pun.
It's a particularly difficult week. When you see price action like we saw this week, you automatically assume that you will be going short something. Then, you go look at your trusty technicals for the week, and they tell you to go long. That always makes me hold my head low because these are the most arduous weekends to find something to buy. In looking for a long position this week, it seemed that 19 out of 20 stocks had broken trend, not only on a daily, but weekly basis. There's carnage out there. It does not look good. Yet, my index analysis tells me that people were actually accumulating shares in the midst of this horrible price action, and so I forge on looking for a long.
Fundamentals
On a fundamental basis, Burger King Holdings Inc (BKC) doesn't look bad. It is predicted to have double-digit growth next year. Compared to its peers, it has gross margins, operating margins, price/earnings ratio, and PEG ratio all above the average. The PEG is the most credible metric to me when evaluating a stock, especially when the stock is this depressed. Anything below 1 is good to me, and with all the carnage this stock has been through, the fact that it's still that low tells me that the analysts haven't bailed on it.
Clearly, McDonald's, the cream of the crop, has been blowing the doors off this industry group. There often lies a virtue in being second-best, however. Wall Street will pound the second-best, especially when it's a household name because they expect the same or near the same from the second best, and they pound it when it doesn't meet those expectations. This has gone on way too long, and BKC now looks like a great buy on valuation. Now I only hold things for a quarter, so many times the financials lend little to my thesis. On to the technicals . . .
Technical Analysis – Weekly
I am not as proud as I could be about this stock. It looks pretty good, but I usually like to invest in home runs. Nonetheless, as I said, my crystal ball says to be a buyer this week, so I'm the ugliest guy at the prom this week. Not much choice. Weekly analysis trumps daily, so let's go there first. Nothing horrible here, but nothing to write home about.
Pros
The price trend is a bit rough, with a dip breaking trend back in July, but there's a moderately robust trend there since early June. What I'm a bit discouraged by is the overhead price trend that began around August of '09. When price runs into that, it will experience some significant resistance, but how it behaves at that point, no one could tell you.
See the divergence from price in the Relative Strength Index in April that is reconfirmed in July. Good to see this happen, before the trend reverses.
Price relative to the Wilshire 5,000 has underperformed the market for quite a long time now, but since November, the base has been put in, and it has begun to outperform. I'd prefer a quarter of outperform, but you can wish in one hand and do something else much less desirable in the other, and see which one gets filled first!
Cons
The stochastics really are telling me nothing one way or another, so I'm neutral on those.
The Chaikin Money Flow has been diverging to the downside, and I don't like that much, but again, I'm trying to find a sheep with strands of grey in a flock of black. I wish I had better alternatives, but don't.
Technical Analysis – Daily
Pros
You'll see from the price trend discussion below that this stock is not doing very well on a daily basis, but the weekly trend trumps that. This just looks like a short-term pullback. What convinces me more is that the "golden cross" (50-day moving average crossing the 200-day to the upside) happened right before the New Year. The 50-day is in a solid uptrend, and the 200-day just turned positive. So even thought the price action is trapped in between the 50-day and 200-day. This is a very significant positive in that both moving averages are positive for the first time since about September of '09.
Looking at volume, it looks like the longs have been winning since this trap between the 50- and 200- days.
Rather impressive is the price relative to the Wilshire 5,000. Notice how the price has been outperforming since 19th Jan.
Cons
The Relative Strength Index tells me bupkis, really. For those of you who are enthusiasts of the resistance at 50 thesis, well, you've got me there—for now.
The price trend is down on this stock, no doubt—lower highs and lower lows.
Looking at volume again, there was a huge distribution day on January 18th. This is good on the one hand because you may have gotten everyone short on this stock who might want to be at this point. After all, the long-term downtrend is over a year old. Short interest in this stock is about 9%, which is pretty high. There is moderate resistance at around 18 because of this big volume day, but if the shorts panic, there could be quite a squeeze here, which would hurdle it above the 50-day, and then we're off to the races.
Like in the weekly chart stochastics tell me nothing, as does the Chaikin Money Flow.
Conclusion
So here we are. I think in the final analysis, I am somewhat neutral on this stock, but in a market that's just been doggin' over the past 3 weeks, neutral can become pretty positive in a hurry. Besides, if I lose my job tomorrow, I'm poundin' Whoppers. Who makes Lipitor again? Let's see how this one shakes out. I'll be in it, so you'll know in exactly 3 months.
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