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March 26, 2007
Cloudy Constellation revisited, Mon., Mar. 26, 2007, 6:05 PM
I am always leery when I see Financial Entertainment TV fawn over Corporate CEO’s. Over the years, not long after their visit with people we know as “Television Personalities”, too many of these CEO’s seem to be visiting Crowbar Hotel or, in any case, dancing to a different tune.
Do you recall the case of Constellation Brands (NYSE: STZ)?
For a while early in 2005, I thought CNBC was going to give the man his own TV show. Cramer sure loved the story. And I didn’t. So I compared the company to a legitimate heavyweight contender – a member of the Cara 100, Diageo (NYSE: DEO).
I recommended a purchase of DEO and sale of STZ because I didn’t want to pick on Cramer. I simply wanted to explain to readers how I pick companies. Anyway, both stocks were trading at about the same price that day (April 8, 2005). But today, on a relative basis, STZ (in blue) has been a disaster.
Moreover, I wasn’t prepared to recommend the immediate purchase of DEO on that date (April 8) because the Daily RSI-7 was over 80, so I told you the price would soon look better. My long-time readers know that when I see an RSI-7 down below 30, I look for the next point of reversal, ie, a rising RSI-7, before I’d buy.
The heavy arrows on the green RSI-7 line of the Daily price series data show that just a couple days after April 8, 2005, the RSI turned down, ie, the Distribution Alert, at about 61, and a few short weeks later, in early June, that RSI-7 bounced off the 20 line and headed north, which was an Accumulation Alert at about 55. So, when I say that traders need to have patience and let a stock of a company they like come to them, I think this is a good example.
Somehow, I don’t expect to see the Diageo CEO making the rounds of Financial Entertainment TV. But if I do, here’s what I’d expect: I’d be waiting for eager buyers to come to me because I’d be ready to sell amid the hub-bub.
In any event, you all know how much I like my Guinness, but it's time to say goodbye to DEO ($79.41). In February, the price exceeded 83. The simple version (Investertech.com) Monthly-Weekly-Daily values of the RSI-7 were all in the 80's at that point. I was highlighting the stock in my list of those trading at "Extreme Values". I can't do more than that.
I believe traders will be able to buy DEO in the low 70's, maybe even in the 60's later this year.
Today, the Monthly-Weekly-Daily values of the RSI-7 are 88.5/56.7/72.4. That's still extremely rich. Should there be any rally in the next week, traders will have another opportunity to sell in the low 80's.
As long-time readers know, these are good case studies.
Posted by Posted by Bill Cara on March 26, 2007 06:05:33 PM | Category: Cara Global 100 Best Companies
Discourse
It will be very interesting to see how the world markets react to our "dismissive" take on the morning US New Homes Sales report. So far, Europe is down on average 1% and it looks like Japan doesn't like it either...
Posted by: onlineaces ![[TypeKey Profile Page]](http://www.billcara.com/nav-commenters.gif)
at
March 26, 2007 8:25 PM [link]
Well, you know that STZ is down because of that flood of terrific Australian wine that is eating into margins.
Leisa,
Visited your blog today for the first time, and want to thank you. For the first time, I am learning about Mortgage Backed Securities and the information on your blog quickly clicked for me. All the links to other blog were also of great interest to me. Thanks again.
onlineaces
Posted by: onlineaces at
March 26, 2007 9:06 PM [link]
Leisa,
My point exactly. Wall Street and Constellation CEO Richard Sands knew about the wine glut WELL BEFORE Constellation was being promoted on Tout TV in 1st and 2Q05. That was a blow-off of stock, and, as I see it today (and saw it then), Cramer was the "Take-Out" guy.
But a cratering stock didn't stop Mr. Sands from collecting his million dollar bonuses did it? Of course that's what "TV personalities" make these days. (LOL)
Posted by: Bill Cara at
March 26, 2007 9:10 PM [link]
onlineaces,
Re Leisa's blog: Amen.
Posted by: Bill Cara at
March 26, 2007 9:15 PM [link]
Link to leisa's blog??
Jim
Posted by: jamgar1 at
March 26, 2007 10:51 PM [link]
To get to Leisa's blog, click on her name here on Bill's blog. Her name is underlined.
You can also click below:
www.theperplexedinvestor.blogspot.com
Posted by: GemmaStar at
March 26, 2007 11:34 PM [link]
Leisa,
You may have already been to this site. If not it fits in well with your observations of lenders and mortgages. By the way, great blog.
Posted by: jfs at
March 27, 2007 12:21 AM [link]
First, thanks for the nice comments. Readers here know that I have a penchant for the arcane (too much time I suppose), and like many here, I'm a student. I have no special knowledge of anything, and you will see that I am just an ordinary person trying to make sense of these things. If you are interested in watching my painful learning process on loan securitizations and the like you can visit at your own risk!
To see how sub-prime has eeked its way into loan securitizations, find your favorite subprime lender, find the parallel real estate investment trust and search for 10-D filings. Never seen a 10D filing and are interested in this mess? Visit one here. This one is LEND's 2006-2 trust--so remember that these are new loans whose payment history is unfolding. Happy reading.
http://sec.gov/Archives/edgar/data/1365364/000102024207000016/ac060212.htm
Leisa-
I am waiting for a little graphic of a woodshed at your site where you and I can hang out. :)
Great job. Way to hang it all out there.
Best...
Posted by: MarkM at
March 27, 2007 2:22 AM [link]
ALOHA !!
onlineaces ... Once again the FED proves why they need to be eliminated. I mean could there be a more blatant statement? I will translate ... "WE ARE FIGHTING EVERY POSSIBLE UPWARD MOVEMENT OF INTEREST RATES BECAUSE GREENSPAN WENT TOO FAR WITH CREDIT AND NOW THE ENTIRE US ECONOMY IS IN JEOPARDY OF COLLAPSE!"
Of course historically whenever such "experts" have made such comments it has always been a HUGE contrarian indicator of the future!
The "good" Senator needs to ask Ben who will buy our "debt" if foreigners don't? Perhaps the "CARIBBEAN" ???? Then it comes down to why have Treasuries then? Why have auctions? Lets just buy our own debt!
Posted by: kaimu at
March 27, 2007 7:54 AM [link]
Kaimu-
Love the Caribbean references. I wonder who is heading that little operation?
Continuing to run The Playbook......
Posted by: MarkM at
March 27, 2007 7:59 AM [link]
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Bill, what do you think of the Bernake statement today? Can this be true?
China's build-up of U.S. debt okay - Fed chief
Ben Bernanke says that U.S. credit markets could absorb any major sell-off of Treasury bonds by foreigners.
March 26 2007: 3:14 PM EDT
WASHINGTON (Reuters) -- Federal Reserve Chairman Ben Bernanke said in a letter released on Monday that China's accumulation of U.S. debt is not a problem for the United States or for the Fed's conduct of monetary policy.
"Because foreign holdings of U.S. Treasury securities represent only a small part of total U.S. credit market debt outstanding, U.S. credit markets should be able to absorb without great difficulty any shift of foreign allocations," he said in a letter to Sen. Richard Shelby, an Alabama Republican.
"And even if such a shift were to put undesired upward pressure on U.S. interest rates, the Federal Reserve has the capacity to operate in domestic money markets to maintain interest rates at a level consistent with our economic goals," Bernanke said.
Bernanke's March 16 letter was in response to written questions from Shelby after the central bank chairman's Feb. 14 semi-annual monetary policy testimony before the Senate Banking Committee.
http://money.cnn.com/2007/03/26/news/economy/bernanke.reut/index.htm?postversion=2007032615
Posted by: onlineaces![[TypeKey Profile Page]](http://www.billcara.com/nav-commenters.gif)
at
March 26, 2007 7:29 PM [link]