Schaeffer's Trading Floor Blog

Readers Respond - IBM

by 5/5/2005 1:07 PM
Stocks quoted in this article:

Stuart also says - "Nick, IBM, I don't know what's going on there but the tape is UGLY."

My response - For those new to this space, I have been noting concerns on IBM for sometime so I suspect that Stuart may merely be trying to get under my skin and spur a tirade out of me. Of course, the chart is "less-than-constructive" so perhaps I should touch on the topic.

In a commentary early last week - "Feeling Hot...Hot...Not?" - I offered a cynical take on IBM's announcement that they increased their dividend and approved a massive stock buyback. If you are new to this space, click on that link and follow the embedded links back to get a complete play-by-play on the stock.

Turning to the current environment we find IBM trading down one percent after gapping higher this morning on announcing a restructuring plan and large round of job cuts. Those following my comments know that my main contention on the shares has been the complacent Wall Street attitude amid a deteriorating technical picture. In our last check of the sentiment we saw that the percent of the analysts tracked by Zacks ranking the shares a "buy" had slipped to 53 percent. Check it out now...

  • Percent of analysts tracked by Zacks who rate the stock with a "buy": 65%
  • Number of analysts tracked by Zacks: 17
  • Short interest as a percent of float: 0.8%
  • Short interest ratio: 2.339
  • Put/call ratio percent rank: 21.8%

It appears that the "playbook" offered the right advice as the Street has flocked back the shares like flies to...uh...sugar?

I guess my bottom line is this - at the end of March I expressed concern on IBM as it was trading near 90 and 62% of the analysts tracked by Zacks rated the stock with a "buy". Now the stock is trading near 75 (after the company reported an abysmal earnings report) and 65% of the analysts tracked by Zacks rate the stock with a "buy". As a contrarian, that doesn't make me feel warm and fuzzy...

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Readers Respond - WMB

by 5/5/2005 12:28 PM
Stocks quoted in this article:

Bob says - "Williams (WMB) just out with an excellent earnings report but the stock price is not reacting much. Although, the Schaeffer's equity scorecard is only 4.5, this is probably a good entry here. The MACD is at a low and is starting to do a bullish cross-over. Also, natural gas price is fairly low so any upside movement in it will benefit the sector. WMB has leaps. The stock is trading at 17.75 and has support at 17. (longer term support at 16). "

My response - Bob gives a great technical assessment of the shares, and I agree that long-term chart support sits near 16. However, I would be remiss if I didn't expound upon the sentiment profile. Check out the points below...

  • Percent of analysts tracked by Zacks who rate the stock with a "buy": 60%
  • Number of analysts tracked by Zacks: 10
  • Short interest as a percent of float: 1.8%
  • Short interest ratio: 2.957
  • Put/call ratio percent rank: 56.3%

The shares show little in the way of overt skepticism. Given the strong uptrend of the last two years, a degree of optimism is to be expected and I wouldn't call this over-the-top enthusiasm yet. However, if you note the snapshot below of analyst ratings from Zacks you can see the recent uptick of optimism from the Street.

With the longer-term uptrend still intact, I would not say this is enough to cause a reversal but I think it does warrant keeping a watchful eye on the trend should it begin to weaken. Just my two cents...


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Readers Respond - TXU?

by 5/5/2005 12:10 PM
Stocks quoted in this article:

Stuart says - "Nick, What's your take on TXU please?"

My response - As you can see below, TXU has taken a hit recently...

Created with SuperCharts by Omega Research

This weekly chart shows the strong intermediate-term uptrend (red channel) that has seen the shares bounce along their 10-week moving average. The recent pullback, however, has the shares pushing below this trendline. Meanwhile, a check of the equity scorecard shows a relatively healthy reading of 8.

The break of the 10-week trendline may mean the near-term action is going to get sloppy. However, the longer-term uptrend has not yet been broken and the scorecard is still encouraging.


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Stocks quoted in this article:

Joe says - "Hey Nick, how ya doin'? Could you or would you elaborate on Bernie's most recent comment pertaining to the II poll. Specifically I'm not sure about the terms "going negative" and 10 percent situation. Thank you . I understand that you can't answer me directly but maybe some of the other blog readers feel the same way."

My response - For those who didn't see it yesterday, Bernie touched on the Investors Intelligence data in his Gold Dust column.

The phrases "going negative" and "10 percent" refer to the degree that the bullish percent has been greater than the bearish percent. Recently, however, the bullish percent has been declining while the bearish percent has been rising. Currently the bullish percent stands at 43.5 while the bearish percent stands at 30.4. The difference between these two is 13.1. The last time the difference between these two reading was this close was last year in September - around the time the market stabilized.

In the last few years, this "10 percent" difference is as close as these two reading have come and the current reading may lead some to argue that sentiment has shifted enough to spur a rally. However, a closer examination of the indicator reveals some subtle differences in how they are moving compared to what we are used to seeing. In the recent past, this "10 percent" difference has been achieved via quick spikes but the current situation has shown a "drift" or "trend".

Quick spikes tend to signal capitulation that shakes out the weak hands in the market. However, that is not what we have seen and this current "trending behavior" may suggest that a more extreme reading may be needed to signal a buy. This may mean that the bullish percent may have to drop below the bearish percent - a.k.a. going negative.


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Question Overload

by 5/5/2005 10:33 AM
Stocks quoted in this article:

I have a number of questions sitting in my inbox and I will try to address some of those today...Actually, I was hoping to have already started on these, but my alert for NYSE net ticks hit just before 10:00 AM and I have watching the action to see if this buying was able to gain traction. So far, that bit of buying marked the high as there was no follow-through and the SPX has slowly drifted back to breakeven.

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