Archive for the ‘Chart of the Day’ Category

Chartology 201: How to spot public offerings

Wednesday, February 3rd, 2010

Many market technicians will say, “Give me a chart and I can tell you the history of the company.” They’re basing this remark on the fact the certain fundamental events give rise to specific technical chart patterns.

One such chart pattern is that of the public offering, our topic of today’s discussion.

First of all, many of you reading this may not know what the term “public offering” means. Briefly, a public offering is when a company sells shares to raise money to pay down debt or fund company expansion. When this is done for the first time, it’s termed an initial public offering, or IPO. After that, it’s just called a public offering.

There’s also another type of offering called the secondary offering. The reason it’s called “secondary” is because the company itself is not selling its stock and consequently is not profiting from the sale. The sale typically comes from a major shareholder who wants to diversify his/her holdings or for other reasons. This sale can be dilutive, meaning that their shares will add to the amount of shares on the market (i.e., the float), or non-dilutive.

Chartwise, these events are virtually indistinguishable. Let’s take a look at one of each culled from today’s (Tuesday’s) events:

OKS Chart 2-2-10

SXL Chart 2-2-10

Coincidentally, both of these companies are Master Limited Partnerships (MLPs) but the big difference is that Oneok (OKS) represents a dilutive public offering of 5.25 million units at $60.75 per unit.*

The second chart of Sunoco Logistics (SLX) represents a secondary offering. Its general partner, Sunoco Partners, is selling 2.2 million units of SLX at $68.85 for reasons not given. This is a non-dilutive offering.

You can see from both charts that the price/volume action is very similar to that of a company being taken over except that the price is lower, not higher.

What to do?

So, if you happen to be a shareholder of a company that comes out with a primary or secondary price offering, what should you do?

Unless the company is diluting its shares out of proportion (and you have to be the ultimate judge of that), I’d suggest you revisit your due diligence and see if you still want to hold on to it. If it hasn’t deviated from your initial ground rules, then stay the course (unless there are over-riding market or sector conditions). Sometimes this can be a great way to pick up shares in a good company at a discount.

But whatever your stance, at least now you’ll have a clue what’s going on when a chart of this type pops up on your screen.

* Because of tax considerations, shares in MLPs are termed “units,” and if you purchase them, you’ll need to consult with your accountant on how to handle them at tax time

Chart of the Day: Intraday $SPX

Monday, February 1st, 2010

Wonder where the market (or your stock) might open tomorrow?  Sometimes looking at a real-time intraday chart can help.  Let’s look at today’s 5 minute chart of the S&P 500 index, the $SPX.

SPX Chart 2-1-10

As of this writing, we’re about an hour and 15 minutes before the market closes. Notice that the bearish sentiment seems to be waning as this morning’s trend line was recently violated. The topping tail of the last bar indicates that this trend line may be broken again. So far, it’s looking a lot more bearish into the close.

New website feature: Chart of the Day—Joy Global (JOYG)

Thursday, January 7th, 2010

The Stock Market Cook Book’s sous chefs are in the process of redesigning and updating the website which is one reason why blogging activity has fallen off in recent weeks. But today I’ve decided to introduce a new feature called “Chart of the Day” that will appear when I find a compelling chart that illustrates aspects of technical charting, provides a clearly defined trade set-up, or better yet, both.

Today’s chart of Joy Global (JOYG), a heavy mining equipment maker based in my home state of Wisconsin, shows basic charting elements which suggest some possible trading strategies. Let’s first look at its weekly candlestick chart:

JOYG Weekly Chart 1-07-10

Just before the market crashed in 2008, the stock hit its $90 peak before tumbling 75 points. It roared out of a double bottom in the middle of March, eventually settling into a trading zone between $50 and $58 where it’s been biding its time for the past three months.

Trading Strategies
For those of you who like channeling stocks (stocks that bounce between levels of support and resistance), you could try playing this one for $5-$8 on either side.

The other strategy is much more compelling.

When, after a long period of consolidation, a stock finally breaks one of its channeling boundaries means that it will most likely continue in that direction. And the greater the volume accompanying the breakout, the more likely and more forceful will be the ensuing movement. Typically, any type of news can propel consolidating stocks out of their range–upgrades/downgrades, good/bad earnings, a change in management, a large product order, a canceled product order, stock take-over rumors, positive/negative clinical data (for drug companies), etc.

So, is there anything on the horizon likely to move JOYG? Glad you asked! The company blew away December earnings estimates and may do the same when they next report in early March. Company executives were quoted as saying they expect the order rate to be improving in 2010. But March is more than a month away—might not there be anything else in the offing?

Bucyrus (BUCY), Joy’s major competitor also based in Wisconsin, was recently upgraded to a Buy rating by Barclay’s with a price target of $73. Barclay analyst Andy Kaplowitz expects Bucy’s revenue to meet or surpass last year’s and raised estimates–just like Joy did last month. Joy sports a more than decent balance sheet (for more info see this SeekingAlpha article) and it’s certainly not a wild stretch of the imagination that it, too, could be soon upgraded.

If and when that event occurs, expect a pop over $58. But don’t rush into a long position just yet–the pop should be on heavy volume. The reason is that the “smart money” has recently been preferring Bucyrus over Joy, as evidenced by their divergent On Balance Volumes (OBV) shown in their daily charts:

JOYG Chart 1-07-10

BUCY Chart 1-7-09

What with the rising price of commodities due to global demand–especially coal which benefits both Joy and Bucyrus–it’s not hard to imagine that both stocks will significantly rise in price over the next few years. Despite the fact that domestic orders for mining products have been down recently due to economic conditions, experts are predicting an increase in the next couple of years, boding well for the industry.

To me, the higher percentage play is Joy when it breaks out. Bucyrus has already done so; now it’s Joy’s turn. So, be patient and wait for the soup to come to a boil before dipping in.

Ah…the joy of cooking!