Technical Outlook

A weblog about the markets, trading and technical analysis.

Friday, May 30, 2003

NYTimes: "Schering-Plough Corporation said yesterday that it could soon be indicted in a federal investigation into its prescription drug marketing practices, and face charges that employees destroyed documents related to the case."

SGP closed on Friday at 18.45, down 2.38%.
BBC- Disney uses night-vision goggles to combat film taping: "Security guards use the metal detectors to try to find digital cameras, and then monitor the audience with the night-goggles for 25-minute shifts, to see if there are any strong lights coming from a video recorder ... Studios are very keen to prevent copies of their films hitting the black market, denting box office takings."

Looking at the chart, the 3 year decline of DIS from 43.875 to 13.48 was halted in March 03. The stock has rallied from 14.84 on March 12 to Friday's close of 19.65. A crucial price point is the 20 level. DIS was last at that level on Dec 02, '02, when it hit a high of 20.24. If DIS is able to break through and remain above 20, the next major test would be at the $25 mark.
MSNBC- Microsoft Settles Browser Suit With AOL- "Microsoft will pay AOL Time Warner $750 million to end a private antitrust lawsuit over Web browser technology."

MSFT has been in a downtrend since Dec 02. If we draw the downtrend line based on the peaks of Dec 2 '02 (29.48) and Jan 15 '03 (28.66), MSFT remains within that downtrend. However, if we draw a steeper downtrend line based only on the peaks of 1/15, 3/21 and 4/3, then the downtrend was broken briefly earlier this month but it has since returned below that line. We may currently be in a trading range with support around the 23.9 - 24.0 range. The critical test at this point is whether or not MSFT can remain above the 24 level.

AOL is more clear-cut. After hitting a low of 9.9 on 2/13/03, AOL has been on a steady uptrend, rising to close at 14.85 yesterday, up 50% from the low. There is no technical data to indicate a reversal of trend at this point but a key level of resistance would be the high of 15.65 reached 1/15/03. If AOL is able to push past this point, the next level would be around 16-17.

Wednesday, May 28, 2003

HK Standard- Bank of China (HK) gets new chief: "Liu Jinbao, the vice-chairman and chief executive of Bank of China (Hong Kong), has been replaced by He Guangbei in the first major reshuffle at the bank since its mainboard listing in July. Liu has been transferred to the bank's Beijing headquarters."

"According to previous media reports, the lender is looking to raise as much as 115.7 billion yuan (HK$109.02 billion) by selling 10 per cent of its assets to investors in a Shanghai listing during the first half of 2005 and 15 per cent of itself in Hong Kong in 2006. The Hong Kong unit sold HK$19.2 billion worth of shares in its initial public offering."

Tuesday, May 27, 2003

BBC- Digital Delight for Adobe: "The price of Adobe's shares on the US Nasdaq market has almost doubled in the last nine months ... This is a rare feat given that so many other technology firms have seen their share prices crash as the gloss comes off all things digital."

The chart shows that it's been on a short-term downtrend since hitting a peak of 38.38 on May 5. Even with Tuesday's close at 35.35, up 2.08% on the day, the downtrend line remains unbroken. Unless ADBE breaks above that downtrend line (currently around $36), this would not be a buy.

Marvell Technology Group jumped 16% to 32.10 on Friday. The reason given was that they "posted strong quarterly results". Was there any technical reason to invest in this stock prior to the jump? A look at the chart shows that an uptrend had been developing for the past month or two. More crucial was that MRVL had been in a trading range for the past 9 months and in mid-April had broken through the upper resistance level of $24-25. That would have been a good time to buy. Although if you had bought on April 24, you might have been frightened by the drop on April 25 from a previous close of 24.49 to close at 22.35. However, a logical stop-loss point might have been $20 and setting it at such a point would thus have kept you in the trade. Alternatively, waiting until $25 (the high achieved Nov 21 '02) to buy would have been safer. In any case, technical analysis would have tagged MRVL as a possible buy.

Monday, May 26, 2003

AAPL and online music: On April 28, 2003, Apple launched their iTunes Music Store to sell music online. This coincided with a 30% jump in the stock price over a day or two. AAPL last traded at 18.32. Was there any reason to buy the stock before the sudden jump? A look at the one year chart would say no. AAPL had been in a trading range since August 02. There was no real sign of positive change. If anything, there were signs to sell. In the days leading up to the announcement, AAPL dropped below 14 on high volume. Technical analysis of AAPL would not have alerted us to this trade until the move had already begun and due to the rapidity of the rise, by the time we acted on it, it might have been too late.

This is an example where knowledge of actual events would have been of tremendous benefit. There was advance notice on April 21 that AAPL would make an announcement on April 28. Knowing that the announcement would be positive ("music to your ears"), a more speculative trader could have bought at this point. The stock didn't actually leap until May 5th and 6th, coinciding with AAPL's press release on May 5 stating that they had sold over one million songs in their first week. Acting on any or all of this information would have provided quite a handsome profit.

This also shows the importance of news, announcements and hype in causing prices to move, especially that of AAPL. I remember reading something a while ago about how AAPL's price was related to major announcements and conferences. Given what we have learned, now that the news about the music store is out, what major news is out there to spur the stock price to greater heights? The current level of resistance appears to be around 19.

One has to admire the vision and marketing job done by Steve Jobs and Apple. Jobs is always announcing something new at AAPL. It's always something done with great anticipation and fanfare, whether it's the iMac, iPod, iBook, iTunes, etc. What other tech company has done that? Microsoft? Dell? Intel? Gateway?

I kept thinking to myself: why didn't Amazon act on this idea? They have the infrastructure, the know-how. Why didn't they come up with this on the scale that Apple has? Perhaps they tried but failed. If so, why? Now that Apple has done it, is Amazon considering either partnering with them or doing something similar or acquiring a smaller online music player? Everything You Need to Know About the 200-Day Moving Average. A pretty basic article that analyzes the profitability of trading using 200-Day MA crossovers as buy and sell signals.

"If you put a $10,000 put into this system in 1950, it would be worth $55,000 today. If you put a $10,000 put into a buy-and-hold strategy, however, it would be worth $494,000."

Fails to consider refinements of the crossover strategy. What about only generating signals only if the price crosses a certain percentage beyond the 200-day MA or stays beyond the MA for a certain number of days? This would eliminate a large number of whipsaws. Also, what about studying to see if the 200-day MA is the best signal for the S&P (what the author of the article was studying). How is its effectiveness compared to using a 50-day MA or a 300-day MA? What about utilizing a double or triple MA crossover system?