My Favorite Set-Up: The Awakening Giant

I’m not a technical analyst but I know how to use technical analysis.

I’ve explained before that I believe fundamentals tell you what to buy, technical analysis tells you when to buy it (or when not to or when to sell etc).I’ve rubbed elbows with some of the greatest fundamental equity analysts working today, amazing stock pickers  – and I believe all of them would have a shot at true, everlasting glory if they would just respect the basic tenets of supply and demand.

My core belief is that having the ability to analyze both a company and its stock price, separately and then relatively, is superior to living or dying by just one discipline or the other. It’s what we try to do here every day with both stocks and indices (hence the name of my shop, Fusion).

Anyway, with that preamble out of the way – two very quick and dirty charts on two of our holdings, both of which could be considered as exhibiting my favorite set-up.

I call this set-up the Awakening Giant.  In a nutshell, these are big, well-managed companies whose share prices have flat-lined for an extended period of time -so much so that there are no sellers left and no one is paying attention to them any more. This leads to clean charts with well-defined resistance and support levels and not a lot of volatility or whipsawing back and forth. And then I want evidence fundamentally that something is changing – either at the company or among the market players’ perception.

Here’s Wal-Mart ($WMT), exploding out of a 12 year period of stagnation, thanks to the torture of PE multiple compression…that’s how it triples its earnings per share in the last decade but the stock price spends that whole time coiling up for this big move, which we caught over the summer:

(Click to Embiggen!)

I bring this up because two days ago we put on a trade in Johnson & Johnson ($JNJ), a long position at 69 and change, and the set-up is almost identical.  Here, like with Wal-Mart, we have a gigantic, well-run company that’s essentially done nothing for ten years. It’s been forgotten. Even amongst its own industry – consider that the healthcare sector was up 24% YTD at the start of this week while JNJ was up less than 5%.  There was a good reason for this under-performance and a good reason for why it should narrow going forward.  JNJ is three businesses in one: The pharma part of the company is firing on all cylinders, the medical devices part has also been on fire thanks to an acquisition of Synthes which became accretive ahead of expectations, but the consumer products group has had its worst year ever thanks to recalls of Tylenol and things of that nature.  But when the company reported earnings Tuesday morning, they were able to allay The Street’s concerns and report quite a bit of progress on FDA monitoring, litigation settlements etc.

And that’s when the breakout began, the stock is pennies from all-time highs:

(Click to Embiggen!)

Anyway, these are my favorite types of set-ups. They have a combination of all the things I’m looking for in an equity investment – not just quality but timeliness and a lack of natural sellers. Keep in mind that we typically watch weekly charts rather than daily. More often in a stock like this, we are investors rather than traders. Whether or not the breakout to all-time highs happens now or in a month, it shouldn’t matter. We’re happy to collect that 3.5% dividend while we wait.

 

 

This content, which contains security-related opinions and/or information, is provided for informational purposes only and should not be relied upon in any manner as professional advice, or an endorsement of any practices, products or services. There can be no guarantees or assurances that the views expressed here will be applicable for any particular facts or circumstances, and should not be relied upon in any manner. You should consult your own advisers as to legal, business, tax, and other related matters concerning any investment.

The commentary in this “post” (including any related blog, podcasts, videos, and social media) reflects the personal opinions, viewpoints, and analyses of the Ritholtz Wealth Management employees providing such comments, and should not be regarded the views of Ritholtz Wealth Management LLC. or its respective affiliates or as a description of advisory services provided by Ritholtz Wealth Management or performance returns of any Ritholtz Wealth Management Investments client.

References to any securities or digital assets, or performance data, are for illustrative purposes only and do not constitute an investment recommendation or offer to provide investment advisory services. Charts and graphs provided within are for informational purposes solely and should not be relied upon when making any investment decision. Past performance is not indicative of future results. The content speaks only as of the date indicated. Any projections, estimates, forecasts, targets, prospects, and/or opinions expressed in these materials are subject to change without notice and may differ or be contrary to opinions expressed by others.

Wealthcast Media, an affiliate of Ritholtz Wealth Management, receives payment from various entities for advertisements in affiliated podcasts, blogs and emails. Inclusion of such advertisements does not constitute or imply endorsement, sponsorship or recommendation thereof, or any affiliation therewith, by the Content Creator or by Ritholtz Wealth Management or any of its employees. Investments in securities involve the risk of loss. For additional advertisement disclaimers see here: https://www.ritholtzwealth.com/advertising-disclaimers

Please see disclosures here.

What's been said:

Discussions found on the web
  1. immediate edge review commented on Sep 23

    … [Trackback]

    […] Read More to that Topic: thereformedbroker.com/2012/10/18/the-awakening-giant-my-favorite-set-up/ […]

  2. best wigs for womens commented on Sep 25

    … [Trackback]

    […] Information to that Topic: thereformedbroker.com/2012/10/18/the-awakening-giant-my-favorite-set-up/ […]

  3. bitcoin signal robot commented on Sep 30

    … [Trackback]

    […] Find More to that Topic: thereformedbroker.com/2012/10/18/the-awakening-giant-my-favorite-set-up/ […]

  4. Vape juice commented on Oct 29

    … [Trackback]

    […] Read More Info here on that Topic: thereformedbroker.com/2012/10/18/the-awakening-giant-my-favorite-set-up/ […]

  5. Best reputation management services commented on Nov 23

    … [Trackback]

    […] Find More to that Topic: thereformedbroker.com/2012/10/18/the-awakening-giant-my-favorite-set-up/ […]

  6. cbd reddit commented on Nov 28

    … [Trackback]

    […] Info to that Topic: thereformedbroker.com/2012/10/18/the-awakening-giant-my-favorite-set-up/ […]

  7. 밤토끼시즌2 commented on Nov 29

    … [Trackback]

    […] Find More on to that Topic: thereformedbroker.com/2012/10/18/the-awakening-giant-my-favorite-set-up/ […]

  8. wigs commented on Dec 17

    … [Trackback]

    […] Read More on that Topic: thereformedbroker.com/2012/10/18/the-awakening-giant-my-favorite-set-up/ […]

  9. Azure DevOps commented on Dec 18

    … [Trackback]

    […] Info on that Topic: thereformedbroker.com/2012/10/18/the-awakening-giant-my-favorite-set-up/ […]

  10. diamond art commented on Dec 30

    … [Trackback]

    […] Find More Info here to that Topic: thereformedbroker.com/2012/10/18/the-awakening-giant-my-favorite-set-up/ […]

  11. vehicle check commented on Jan 15

    … [Trackback]

    […] Read More Info here to that Topic: thereformedbroker.com/2012/10/18/the-awakening-giant-my-favorite-set-up/ […]

  12. Https://onlinegundealers.com/ commented on Jan 22

    … [Trackback]

    […] Read More Information here to that Topic: thereformedbroker.com/2012/10/18/the-awakening-giant-my-favorite-set-up/ […]

  13. bandar togel commented on Jan 23

    … [Trackback]

    […] Read More Info here to that Topic: thereformedbroker.com/2012/10/18/the-awakening-giant-my-favorite-set-up/ […]