Wall Street's Pick and Pans
01/08/2013 10:28 am EST
There are about as many market indicators out there as mosquitoes in a Florida swamp, and MoneyShow’s Tom Aspray looks at one investment strategy that some use as a contrarian indicator.
A quite interesting article from the weekend edition of the WSJ looked at the performance of stocks that are the most highly rated by Wall Street analysts. Last year’s stocks with the most buy ratings beat the performance of the S&P 500 by 4%.
The author, Brett Arends, points out that “buying the 10 most popular stocks each year would have brought you total losses of 11% over the past five years. Owning an index fund that simply tracked the S&P 500 instead would have been much better, earning a 9% profit. And buying the 10 least popular each year would have been better still, earning 16%.” Therefore it is not surprising that some investors use this data as a contrary indicator.
This table reflects the 2013 picks and pans, and it should be understood that the majority of buy or sell recommendations from Wall Street analysts are based on fundamental not technical considerations.
Therefore, I wanted to take a look at all 10 stocks from a technical perspective using both monthly and weekly data to see which stocks looked the best from a technical perspective right now. That does not mean that they will be the best performers for all of 2013 as my crystal ball does not look that far out for individual stocks.
The recent analysis of the daily and weekly NYSE Advance/Decline line does indicate that stocks will move higher in 2013 as there are no signs yet of a major top. Therefore a correction over the near term should be a buying opportunity and I have isolated four stocks from both the “most and least liked list” that should be good picks if they drop back to the right price.
Chart Analysis: Berkshire Hathaway Inc. (BRK.B) staged an impressive breakout last week as it moved sharply above the resistance in the $90.93 area, line b.
- The upper trend line on the weekly chart, line a, that connects the 2010 and 2011 highs is now at $95.50. The quarterly R1 is at $96.32.
- The weekly relative performance has just recently completed its bottom formation as resistance at line d, was overcome.
- The weekly OBV overcame the resistance from 2010 and 2011 in early 2012, line e, and has continued to be strong.
- BRK.B tested its weekly starc+ band last week so it is in a high-risk buy area.
- Initial support now at $91-$92 with the quarterly pivot just above $90.
Andarko Petroleum Corp. (APC) is a $39.1 billion independent oil and gas company. The close last week was just above the weekly resistance (line f) that goes back to May 2012.
- The quarterly R1 is at $82.56 with the early 2012 high at $88.70. If this level is surpassed it would be a major long-term breakout.
- The relative performance completed its bottom formation late last year as resistance, line h, was overcome.
- The RS line has now turned up from its rising WMA.
- The weekly OBV has just overcome its downtrend, line j, and shows good support at line k.
- There is initial support in the $75.60-$76.50 area and then at $74. The quarterly pivot is at $72.94.
- The daily technical studies are positive and also confirmed the recent breakout.
NEXT PAGE: Two Least-Liked Stocks
Neflix Inc. (NFLX) is the least-liked stock for 2013 but the weekly chart and technical studies suggest that a bottom was completed last October.
- NFLX has been rising steadily over the past nine weeks as it has been above its 200-week EMA.
- The chart shows next resistance in the $109 area with further resistance in the $122 area (line a).
- The 38.2% Fibonacci retracement resistance is at $140 with the 50% resistance level at $168.
- The RS line broke its downtrend, line d, in October as it moved back above its WMA.
- A move in the relative performance above the resistance at line c, will confirm a major bottom.
- The weekly on-balance volume (OBV) moved through its resistance, line e, in early November.
- The higher lows in the OBV, line f, is consistent with a major bottom.
- There is first good support at $94-$95.30 with more important in the $92 area.
- A break of the monthly pivot at $88.30 would be negative.
Waste Management Inc. (WM) is a $15.7 billion dollar company on the least-liked list that currently yields 4.2%. The monthly chart shows that prices are reaching the apex of a three-year triangle formation, line g and h.
- There is resistance next at $34.45 with monthly resistance at $35.70-$36.35.
- WM had a high in 2009 of $39.69.
- The monthly relative performance has turned up, but is still below its WMA and the downtrend, line i.
- The monthly OBV suggests that accumulation is taking place as it has moved above major resistance at line j.
- There is initial support in the $35.50 with the quarterly pivot at $33.08.
- The December low was $32.33 with the monthly uptrend, line h, now at $31.33.
What it Means: I continue to expect the major averages to easily have double digit gains this year as the Spyder Trust (SPY) is already up 2.4% this year. This means that the best stocks could see 20-30% gains in the first half of the year
Andarko Petroleum Corp. (APC) and Waste Management Inc. (WM) will require less of a correction and therefore look like the best picks currently. Of course, WM is part of the industrial sector, which has started to outperform the S&P 500.
How to Profit: For Andarko Petroleum Corp. (APC), go 50% long at $76.20 and 50% long at $75.44, with a stop at $71.32 (risk of approx. 5.9%).
For Waste Management Inc. (WM), go 50% long at $33.24 and 50% long at $32.64, with a stop at $31.18 (risk of approx. 4.7%).
For Berkshire Hathaway Inc. (BRK.B), go 50% long at $91.22 and 50% long at $90.34, with a stop at $86.48 (risk of approx. 4.7%).
For Neflix Inc. (NFLX), go 50% long at $92.42 and 50% long at $91.44, with a stop at $87.21 (risk of approx. 5.1%).