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All,
I've finished my weekly testing without many new candidates. Looking at
my watch list I still like Kulicke & Soffa (KLIC) which was last weeks pick.
However, that's another tech stock and I already have several in my portfolio.
The stock I'm replacing, Oakwood Homes which I was stopped out of this week
was not a tech stop and I'd like to replace it with another non tech stock.
In thinking about what to replace OH with, I started to think about
investment stories. I'm already placing large bets on the tech and finance
sector stories, so I wanted a third alternative. I'd heard that we may be at
the beginning of a tremendous bull market in grains. Carry over is at an all
time low and demand is at an all time high. The growing world wide prosperity
has resulted in increased demand for meat which drives the demand for grains
to grow the meat. This is confirmed in my mind by the fact that my Missouri
farming relatives are NOT talking hard times for a change <G>. Since I don't
play the commodies market, I needed to relate the grain demand to a stock
market play. My thinking was that farmers will profit from continuing high
grain prices. If farmers have large profits they invest in farms and farm
equipment. Therefore, farm equipment might be a good play.
I looked at Deere (DE) and Agco (AG) on Telescan. Both have good
fundamentals except for last years sales and earnings growth. That didn't
bother me, since I'm thinking that the grain demand will drive future, not
past, equipment sales. AG had a lower PSR and PE, but DE had more consistent
earnings. In looking at the charts, DE just broke out of a sideways move and
AG had not. Therefore, I decided that DE would be my replacement.
DE at 48 3/8 is in the middle of both a Short Term Up Trend Channel
(STUTC) and an Intermediate Term Up Trend Channel (ITUTC). The top of the
ITUTC is at 54 and the bottom at 40 1/2. The top of the STUTC is at 49 7/8
and the bottom at 46. I don't usually get in at mid channel, but will make an
exception when there is a breakout from a several month sideways move involved
like this case. Last Tuesday DE broke out of a six month sideways move. It
pulled back a little on Wednesday and then climbed up on Thursday and Friday
to an all time closing high. The ADXR has climbed from 8 to almost twenty in
the last three months indicating we are close to beginning a new trend. ROC
and S/C are both positive and rising indicating that the trend will be up. If
the market looks OK Monday, I'll open a long position. I'll set my initial
target at the top of the ITUTC at 54 and my stop just under the STUTC at 45
3/4.
KLIC at 31 3/4 has a very similar chart. The top of its ITUTC is now at
37 1/4 and the bottom at 22 1/2. The top of the STUTC is at 35 1/2 and the
bottom at 27 1/2. It did break out of its sideways move by closing well above
30 on large volume last Monday. It has been consolidating with a sideways
move since. As I said last week, I got a three moving average system
MetaStock buy signal a couple of weeks ago, but wanted a close above 30 before
considering this one. We got that with a vengeance Monday. If I am stopped
out of any of my tech stock positions, I'll replace it with this one.
I'll send charts to everyone on the e-mail list. If you're not on the
list, but want on, just yell. The only obligation is participation in this
forum.
Jim
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