Novice Investing - Technical Update

Date: Saturday 04th 2009f July 2009 04:08:34 PM

Technical Update - 06/20/2005

By: Hari Wibowo

It is time for another technical update! Time really flies. 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 $16/share. It experienced a massive sellout this week with high volume. So, should you sell if you own the stock? Let's see now. WDC is now back at the edge of its uptrend channel at $ 13.20.

When to sell: Sell when this uptrend is broken ( currently resides at $13.20). If WDC goes up from here, watch the volume. Up - volume of 10 million shares or less is considered low here.

Hint: You should wait if WDC consolidates for the next few days. My gut feeling is that WDC will start developing new trends of rising at low volume while dropping at higher volume. We will soon see.

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. On our last technical update, I concluded that KKD might bottom out at $5.50/share. It bottomed out at $ 5.87 in late April.

The technical perspective looks encouraging for KKD. In late May 2005, it broke its 18 month downtrend. Volume looks decent during the new uptrend. What I mean by decent is that the stock always have a higher volume when it rises and a lower volume when it drops. For those with technical analysis knowledge, KKD seems to be in the process of forming inverted head and shoulder pattern. I might be wrong but when the formation is completed, KKD will break above its 200 Moving Day Average (the red line)

When to buy: If you like the fundamental, KKD should be bought when the downtrend line was broken in late May. The break volume was quite high (2-3 times higher) compared to the previous 20 days. Another good buying opportunity is when KKD falls to the bottom of its uptrend line. This line is currently at $6/share. Remember now, the volume needs to stay low during the drop.

Hint: I happen to not like the fundamental of KKD. Therefore, I won't buy even if the technical seems right. It announced on June 13th 2005 that it would miss yet another deadline for filing its financial statement.

Merck & Co Inc. (MRK)

We featured MRK on 02/23/2005 and our calculation shows that MRK has a fair value of $43.95/share. Fundamentally, we need to buy MRK at $ 29.30/share to get a 50 % return on investment. Technically, however, we need to buy MRK at the bottom of the uptrend line. You could have that chance 2 weeks ago when MRK fell close to $ 31/share.

The technical picture of MRK remains good. I prefer stronger up-volume for futher confirmation. But I guess, you can not have it all. The high up-volume during the rise on February and April 2005 remains the primary driver of the rally.

When to buy: With the stock already at an uptrend line, technical picture is actually a buy at MRK. It is still priced really close to its uptrend line. $ 31 per share reached two weeks ago was the buying opportunity for MRK.

Hint: Please remember that buying MRK now will not give 50% return on investment based on the calculation of MRK's fair value.

Leap Frog Enterprises Inc. (LF)

Our stock portfolio pick, LF, has been hammered since we last bought it. The technical picture has improved however. The downtrend that I outlined on the last technical update has been broken.

When to buy: Wait for LF to bounce up the $10 support line at HIGH volume. Right now, it is a pivotal moment for LF. Either it bounce or break down to below $10 with high volume. I guess the catalyst will come on April 29th during its earning report.

Hint: LF has a fair value of $23.40/share. I still feel LF has only encountered short-term problems for its product lines. On April 29th, we will see if it still holds. However, our methodology is combining the power of fundamental analysis and technical analysis. Right now, the technical picture screams more towards sell than buy. I would wait until the technical picture improves before I start buying.

Fresh Del Monte Produce (FDP)

Our stock portfolio pick, FDP, has been brutalized since our last technical update. Volume is high during the sell-off, which is not good sign if you are a shareholder. The only thing positive is that it might bounce from the bottom of the channel.

When to buy: You can buy the stock when it breaks the downtrend line at high volume. Currently, the line resides at $29/share.

Hint: As always, volume can give us some clue about the future direction of the stock.

Magna International Inc. (MGA)

Our stock portfolio pick, MGA has rebounded nicely since our last update.. The stock is breaking resistance after resistance with an increasing volume. Its 5 months downtrend has been broken.

When to buy: Buy when MGA falls to the top of the downtrend line.

Hint: I like MGA from the fundamental point of view. It has the fair price of $ 105/share . The technical suggests that it can reach that price.

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. To view our past technical update, click here and here.

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