Archive for April, 2012

Technical Perspective on Microsoft and Accenture

This semester’s Student Investment Fund class has just added Microsoft (MSFT) and Accenture (ACN) to their Buy list. Next step is to identify entry points for these stocks. Our investment process accomplishes this by using some basic long- and short-term technical analysis indicators. A chart of MSFT’s weekly closing price, along with the 50- and 200-week moving averages of price, is shown below.

MSFT began a new long-term uptrend in early 2012 when its price broke above its 50-day moving average. Although MSFT’s price has retrenched recently, the long-term uptrend remains intact. This is corroborated by MSFT’s relative strength indicator (RSI, top panel of the graph) vs. the market of 60 (> 50 indicates relative outperformance), and their positive MACD (lower panel) of 1.45.

After establishing the stock’s long-term trend, we move on to an analysis of their short-term trend. The chart below shows MSFT’s daily price along with their 50- and 200-day moving average.

MSFT remained in a short-term uptrend from the start of the year through mid-March (rising channel delineated by the parallel red lines), when its price broke below the lower channel. Since that time MSFT has been consolidating in a range defined by support at $30.10 and resistance at $32.75. MSFT’s weak short-term price momentum is further confirmed by their RSI of 45 and their weakening MACD, which recently turned negative at -0.2.

The chart above provides a closer look at MSFT’s MACD. Note how the MACD crossing below the MACD signal line in early February provided an early warning of MSFT’s deteriorating fundamentals. Most recently, the MACD has bottomed and is trending sideways, but remains well below the signal line. MSFT’s weak short-term price action suggests that better entry points may lie ahead. (MSFT traded at $31.44 in the pre-market session on 04.18.12. One strategy for acquiring shares would be to sell the May $31 put contracts for $0.70. If MSFT closes below $31 on May 21, you would take delivery of 100 shares of MSFT at a net cost of $30.30 per share.)

Next we’ll apply the same process to Accenture (ACN), shown in the chart below. A 3-year chart of ACN’s weekly price shows that the stock has been in a significant long-term uptrend. Although the stock is currently trading near the low end of the uptrend channel, the long-term uptrend remains intact. This is corroborated by the price above its 50- and 200-week moving average, an RSI of 56.8, and an MACD of 2.16 (above its signal line).

A 6-month chart of ACN’s daily price, depicting its shorter-term trend, is shown below. This chart tells a different story. ACN has broken below its short-term uptrend channel, and the price is just 57 cents above its 50-day moving average. ACN’s daily RSI of 42.9 indicates a deteriorating short-term trend. ACN’s faltering price momentum is corroborated by its MACD of 0.44, which broke below its signal line in late March and continues to decline.

The chart below provides a closer look at ACN’s MACD. The late March break below its signal line is evident. The evidence suggests that, similar to MSFT, it may be possible to acquire shares at a slightly better entry point.

[Epilogue: The US stock market surged on 04.17.12, and ACN closed at $64.14. With a sell in May and go away late spring pullback lightly, continued patience in acquiring shares of ACN is recommended. ACN’s May $62.50 puts are selling for $0.90. Writing 1 put contract would provide investors with a net entry point of $61.60 if ACN closes below $62.50 on May 21. If not, the investor gets paid $90 to wait another month and observe the price action going into the summer months. Alternatively, the August $60 puts were selling for $2.75 — writing these put contracts provides an investor with $275 up front, and if the Information Technology sector gives back some of its gains from Q1 2012, and ACN closes below $60 on August 18, you could acquire shares at a net cost of $57.25.]

Categories: Market Commentary

US Sector Performance in Q1 2012: Financials, Technology and Consumer Discretionary Stocks Outperform

It was “risk-on” in Q1 2012 in the US Stock Market, as Information Technology, Financial, and Consumer Discretionary stocks led the way with returns of 13-15%:

Five sectors earned less spectacular returns of 3-5%: Health Care, Telecom, Consumer Staples, Industrials and Materials:

Energy and Utility stocks earned returns of -3%, as oil and natural gas prices softened considerably. Note how Energy was a big gainer until late February:

Thus far 2012 has been more or less a carbon copy of 2011. More speculative sectors led the way early, fueled by Fed chatter of endless rounds of Quantitative Easing. The question is, of course, will investors rotate into safer sectors later in the year, as they did in 2011’s version of Sell in May and Go Away, or will the Fed-fueled bull market conditions persist for the summer and fall?

Categories: Market Commentary