WMA Cara Report for week ending December 1st, 2017
  • December 01, 2017 06:59 pm
  • by Bill Cara

Would You Buy These Five Stocks ?

 

We decided to do something fun for this week’s Commentary. Everyone knows that this is a momentum- driven market and doing the same thing that others are doing pays off. However, at some point, from a technical/chartist point-of-view, a falling stock may just become too attractive not to jump on as a capitulation bottom forms. We selected five stocks on the U.S. exchange. All five are blue chip companies and there is no risk of the price going to zero. To make this exercise “fun”, we removed the chart labels so readers are not biased in their decision. After all, in this market, prices are very loosely trading off of fundamentals anyway.

When looking at the following charts, consider investing in these stocks over an intermediate to long-term.

 

Stock1

 

Stock2

 

Stock3

 

Stock4

 

Stock5

 

 

While some readers may be uncomfortable buying these stocks in a down-trend for a short-term trade, most will agree that buying and holding these stock in a portfolio will produce large gains over time. And for sure, no one would dare short-selling these companies at this point.

Once the reader has made a decision on which (or all) of these five blue chip he/she would buy, continue to the next page to discover what you are buying.

Before revealing the names of the companies, we first inform readers that we inverted the price scales on the charts! These down-trends are in fact up-trends.

Stock 1 is:

Spoiler:
Apple

The actual (positive) price increase over the past 18-month is +100% on the nose. If the double bottom after the long down-trend on our inverted chart looked attractive to you, does it make sense to buy a stock like this once the price is flipped?

Stock 2 is:

Spoiler:
Microsoft

If an island reversal at the bottom sets up a strong buy, the same island reversal at the top should have people thinking of a strong sell.

Stock 3 is

Spoiler:
Google

A false break of support and reversal higher makes us hungry to buy. It follows that a false break of resistance and reversal lower should make people think of selling.

Stock 4 is

Spoiler:
Amazon

Our inverted chart makes us think of total capitulation of buyers. Right side up, this chart shows that everyone is throwing money into it in a “price indiscriminate” manner.

Stock 5 is

Spoiler:
Facebook

On our inverted chart, while one would like to see more upside momentum and a break of the previous peak, most would agree that trade to be looking at is to buy, not to sell after everyone has dumped the stock.

Conclusion

This demonstration should convince readers that the degree the melt-up in the Big 5 tech stocks has gotten absurd. If a stock falls as shown in our charts and shows technical signs of reversing the trend, investors should be preparing to buy. However that same price trend in the other direction has investors ignoring the signs of reversal and only wanting to buy more. We call this e-u-p-h-o-r-i-a.

This week the Nasdaq (driven by these five stocks), sold off on Wednesday by -1.7%. While we didn’t get any follow-thru selling, this type of relentless selling may still serve at a shot across the bow for investors getting too comfortable in the Big 5.


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