Technical Outlook

A weblog about the markets, trading and technical analysis.

Thursday, May 22, 2003 Merrill slaps a rare sell on CheckFree. CKFR closed at 24.15 today, -2.09 or 7.96%. Were there any warning signs? CKFR had just shown a double top pattern with the decline occuring on high volume. Traders at the very latest could have gotten out on the 19th or 20th when the price was between 28.8 and 24.25. More astute traders may have exited on May 7 or 8, when the month-long uptrend was broken and CKFR entered a trading range.
McDonald's CEO promises turnaround: "McDonald's Chief Executive Jim Cantalupo on Thursday addressed shareholder concerns ranging from mad cow disease and dirty bathrooms to the taste of its coffee, promising that the company can reverse flagging worldwide sales and lift its battered stock price."

Why doesn't McDonald's sell better coffee? Imagine McDonald's partnering with Starbucks to sell their coffee in all their stores. It could attract customers to their stores and provide them with a product that produces high profit margins. Even if they don't partner with a proven coffee brand, they could consider adding lattes, mochas and cappucinos to their menu. Overhaul the cleanliness and atmosphere of their stores and they could even turn McDonalds into a destination, a place where people can go to hang out, study, etc.

As for the stock performance, MCD has risen 44% since March, going from a low of 12.12 to today's close of 17.50. Although this broke the short term downtrend, the chart shows that MCD is in a long term downtrend since 1999-2000, This is still in place. Another worring sign was the drop on May 20 from 18.16 to 16.95, breaking the short term uptrend line on high volume. This drop was attributed to the discovery of mad cow disease in one Canadian cow. Current price remains below the uptrend line. Caution should be exercised at this point and should not buy unless MCD returns above the uptrend line and maintains the pace.
GIllette broke through 33 today. Stayed above 33 all day after testing support twice. Closed at 33.11.
Nike signs LeBron James to a seven year $90 million shoe deal: "Rick Burton, executive director of the Warsaw School of Sports Marketing at the University of Oregon, said watching how Nike shareholders respond to the news on Thursday should be interesting."

"'When Tiger Woods signed his first deal with Nike worth a reported $40 million, one analyst said that Nike overpaid and downgraded the stock,' Burton said. 'A couple weeks later, when Tiger won the Masters, it was concluded that they had bought the right guy. We'll obviously have to wait until October to see the first glimpse of LeBron.'"

Wednesday, May 21, 2003

What's going on with Gillette? One of Warren Buffett's favorite companies and featured as one of the "Good to Great" companies in Jim Collins' book, G has had mediocre stock performance in the past 4 to 5 years. The 20 year uptrend was broken in 1998 and since 2000, G has been in a trading range. Since August 2002, G has had an upper trading range limit of 32.49. G broke through the range on May 15, but not on significantly higher volume. Still, for the past week, it has managed to stay above that level. A sustained breakthrough above the 33 level would be a further positive sign. However, what is the further upside? I don't know but I do know that returning below the level of 32.49 would be a negative sign for further short-term gains.
Atari shares sink after release of Matrix game: "After the April 17 announcement that the $30-million game had been completed, shares in Atari, formerly known as Infogrames Inc., went on a run, gaining about 200 percent through May 14, the day before the game's launch ... But since May 14 the stock has been sliding, losing almost 28 percent, although it is still up 168 percent in 2003."

ATAR closed at 4.15 today, down 0.50 or 10.75%. The chart shows a short term double-top pattern with a bad sign that the highest volume was recorded on the decline from the last top. Definite short-term sell signal.

Why the massive run-up in the last month? Why the reaction after the release of the game? The 200 percent run-up might be attributed to the hype surrounding the release of "Matrix Reloaded" but what about the rapid decline of the stock price? Perhaps the negative reviews surrounding the game and no further news to spur further buying. Also trading at a P/E of 46.50 at the moment. Here's an example where knowledge of the events surrounding a company might have helped predict a peak. It would be interesting to investigate the correlation between stock price and the release of a film by a major movie studio.