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Date: Friday 29th 2008f August 2008 09:48:36 PM

Technical Update - 03/21/2005
By: Hari Wibowo
In this column, I will update the technical aspects of the stocks that we have discussed in our portfolio section. As you may know, our methodology is combining the power of fundamental analysis and technical analysis.
 
Western Digital Corporation (WDC)
We first mentioned WDC on 11/19/2004 column. At the time, I calculated the fair value of the stock at $11.35/share. The fundamental has improved and it has since risen to $12/share before pulling back. So, should you sell if you own the stock? Not quite. Looking at the technical analysis, WDC is still in the steady uptrend with good up volume. Therefore, I do not advocate selling just because our target price of $11.35/share has been reached. Our methodology here is to get as much gain as possible while protecting our downside. 
 
When to sell: Sell when this uptrend is broken ( currently resides at $11.50). But broken uptrend is not a sure signal to sell. Watch for the volume at the time of the selling as well. High down volume is a confirmation that WDC should be sold.
 
Hint: High volume is relative. In this case, what I consider 'high' is the daily volume in the neighborhood of 4 million shares or more.
 

 

Krispy Kreme Doughnuts Inc. (KKD)
We first mentioned KKD on 11/30/2004 column. At the time, I felt that the stock is fairly valued at $10.0/ share. For a 50% return, KKD needs to be bought at around $6.50/share. Even then, I felt that it is still a risky investment. Since then, KKD has plunged to a low of $5.05/share before rebounding to around $7.50/share. With this risky investment, we need to make sure that the technical analysis is bullish before start buying on KKD.
 
High up volume on March 2005 is certainly encouraging. However, KKD is still in the downtrend line. Right now, we need to wait for further evidence of improving technical picture before we can declare that the worse is over.
 
When to buy: Buy when this downtrend line is broken ( currently resides at $9.50). Watch for the volume at the time of the buying as well. High up volume is an indication that technical picture of KKD is bullish. 
 
Hint: While the technical picture improves at around $9.50 (the broken trendline), please keep in mind that the fair value of KKD is $10/share. Therefore, if we buy it at $9.50, it is not a good investment pick. Please remember that our methodology is 80% fundamental analysis and 20% technical analysis.
 

 

Merck & Co Inc. (MRK) 
We featured MRK on 02/23/2005 and feel that the picture of Vioxx litigation has improved somewhat due to the FDA decision to let Vioxx be sold with a stern warning. Our calculation of fair value shows that MRK has a fair value of $43.95/share. We are currently waiting for MRK to go to $29.3/share before buying the shares for investment.
 
The technical picture of MRK has improved with the high up-volume in mid february of 2005. It is in a small uptrend now while it is basing near a strong resistance at $32.50. Once this resistance is broken (with high volume, of course), I would expect MRK to go to around $40 soon.
 
When to buy: With the stock already at an uptrend line, technical picture is actually a buy at MRK. The high up volume on February of 2005 is a good sign to buy. Meanwhile, volume remains low during the consolidation period in March 2005. This is bullish for MRK as well. 
 
Hint: Please remember that buying MRK now will not give 50% return on investment based on the calculation of MRK's fair value. The uptrend line currently resides at $29/share. Therefore, should MRK falls to this area, it is a good long-term buy for MRK assuming the uptrend line remains intact.
 

 

Leap Frog Enterprises Inc. (LF)
Our stock portfolio pick, LF, has been hammered in the past couple of months. The technical picture is not pretty at all. Please wait until it can establish an uptrend or break through some resistance above.
 
When to buy: You can buy the stock when it can breaks the downtrend line (currently at $12.50) with high volume. Right now, the stock has a lot of obstacle to reach that plateau. At this point of time, it is better to wait and see.
 
Hint: LF has a fair value of $23.40/share. I still feel LF has only encountered short-term problems for its product lines. It has already introduced a fall-lineup for 2005 holiday season. This indicates that the company is willing to sacrifice its short-term result for a great holiday season. However, our methodology is combining the power of fundamental analysis and technical analysis. Right now, the technical picture screams sell. I would wait until the technical picture improves before I start buying.
 

 

Fresh Del Monte Produce (FDP)
Our stock portfolio pick, FDP, has risen modestly since we last picked it. The stock is in an uptrend and it has a good up volume. Technically, FDP is a buy right now.
 
When to buy: You can buy the stock when it approaches the $28 (uptrend line) at low volume. Make sure it does not break the trend line with high volume.
 
Hint: If and when FDP falls to $29/share, it can be bought as it represents 52% potential appreciation. Please watch the volume carefully when it falls to $29/share.
 

Conclusion
I would try to update the technical aspect of the stock in our portfolio from time to time. This article is intended to help investors to refine their entry points. It is by no means the center stage of investment analysis. Remember, our investment decision consists of 80% fundamental analysis and 20% technical analysis. To view our articles for the portfolio, please click here.