In my view, the market was helped (in that it realy needs a correction) by the Goldman debacle on Friday, but if it doesn't correct more, it will be showing overbought if it resumes going up the way it was last week and the week before. So this pullback so far was a one-day event so far, and I am still very cautious with the positions, really trying to buy things hugging moving averages so that if they fail to stay above them, I can exit immediately.
Before we get to my purchase for the week, I'd like to go over the rationale for closing three positions. For Jeffries (15% gain with a one week holding period) and Republic Airways Holdings (25% with a 7 week holding period) it was the simple fact that the Relative Strength Index (RSI) on the daily chart was over 70 (overbought). Again, I'm still very cautious here with my longs. With Rackspace Hosting, Inc. (8% loss over a two week holding period), I just had that coming to me. Again, I entered this trade wrong and should never have been in it to begin with. I should have done what I always do on mistakes (i.e., turn tail and run). So, when I saw that the Accumulation/Distribution Line (A/D) broke its downtrend on the weekly chart. I had to get out. The interesting thing is that the day I got out, the stock showed an extremely high volume day (which often can signal a change in direction), so I might be shorting this one again if it pierces the 200-day moving average downward, but I just couldn't hold onto it anymore as it was going against me, and it looked like the big boys were getting excited about holding it.
Let's move on to the purchase of the week. I am buying Platinum Underwriters Holdings (PTP).
Valuation and Fundamentals (Courtesy of Yahoo! Finance)
Operating margins are nearly double that of the industry average. The Price/Earnings Ratio (P/E) is about half of the industry average. The Price to Earnings Growth (PEG) ratio is lower than the industry average and below 1, which is very healthy. Price to Sales (P/S) is less important to me, but admittedly, it doesn't look that healthy.
Technical Analysis - Weekly
Right off the bat, let's say that I wish I had something a bit better to invest in this week, but my screens are not showing anything approaching perfection. This one's pretty goo
d, but I am a bit tenuous about the fact that we still have to see if this stock will bounce off its 40-day moving average (which approximates the 200-day). If it had already bounced and was off to the races again, I'd be a heck of a lot more comfortable.On to the rest of the analysis, you can see that there has already been divergence in the Relative Strength Index (RSI), but that has already pulled back to the 50 level, which means to me that that divergence has just about resolved itself. I do like the fact that the price is at a key support level while it is about to run into the 40-week moving average. Incidentally, there is another even stronger support level at about the 35 level, so if the stock fails temporarily at the 40-week, it has another stop at 35. Finally, the 10-week and 40-week moving averages are in an uptrend, which signals the stock is in a good, robust uptrend.
Stochastics are telling me nothing either way. The stock price relative to the Wilshire 5,000 index has been lagging the broad market. I don't generally like that except for the fact that stocks with run-ups need to consolidate every once in a while, and that's what this one has been doing since August of last year.
The best part of the story is the A/D line. I do like the fact that it has been steady and recently has been outperforming the price action a bit. So this shows that the big institutions are getting in here and starting to buy as the 40-week moving average nears.
Technical Analysis - Daily
The RSI has been in neither overbought or oversold territory over the
life of this chart, so that is a pretty meaningless indicator in this case. Both the 50-day and 200-day moving averages are in an uptrend. Stochastics don't say much. Again, the stock has been underperforming the market, but the stock has been consolidating. The thing of beauty is the A/D line. Look at the solid uptrend as the price has recently declined. This gives one faith that the institutions are stepping in here and buying as the price nears the 200-day moving average and its various support levels we saw on the weekly chart.I'll buy at the open tomorrow and put a stop loss order underneath at $33.54, which is 4% below the 200-day moving average. If I didn't only trade once a week, I might have been able to pick this up at about 1 or 2% better price, but I do only trade once a week.
As usual, thanks so much for reading!
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