Investment strategy: Rickshaw man may be pulling an uptick

Keith Richards, portfolio manager at Barrie, Ont.-based Value Trend/Wealth Management has spotted a long legged doji, or rickshaw man, on his candlestick charts. This rickshaw man pattern indicates indecision and lack of direction in the market and may be the best known of technical stock market indicators.

Do you know what a doji is? It’s a rickshaw figure on a candlestick chart used by technical analysts to aid them in formulating an investment strategy and making stock market predictions.

It’s also often a buy signal. On Sept. 29, we saw a doji. But we’ll have to wait a few days to see if the rickshaw man is pulling an uptick. True, dojis can be bearish at the top of the market.  But this doji is a possible market turnaround signal.

In fact, it showed the market to have opened and closed very tightly — something that can be a sign of changes to come. And although the trend over the past few months has been negative, that trend came to a halt on Sept. 29.

Moreover, other technical stock market signals, such as what appears to be a positive hook on the relative strength index, as well as on the stochastics indicators, are showing further potential for upside.

Still, you should only start dipping your toes in the water if you see a positive follow-through. If that happens, I’ll start picking away at stocks.  I expect to invest in tiers, playing the peaks and rallies on the daily chart patterns.

But remember:  if stocks fail to hold up, you’ll need more evaluation and time before starting to buy. In the meantime, here are a few sectors and specific stocks you might buy if the rickshaw man turns out to be reliable.

Mickey Mouse it’s not

First up, the consumer discretionary sector. Seasonally strong from November to May, the sector includes such heavyweights as The Walt Disney Company (NYSE─DIS) which we already own here at ValueTrend.

Despite a breakdown in its trend in August, Disney is managing to stay above its previous low. And, yes, while Disney fell below its 200-day moving average, so did many other companies in many other sectors in both the U.S. and Canada.

And although such declines back in 2011 did foreshadow both a sell-off and a correction, they didn’t foreshadow a change in the secular trend.

In the meantime, Disney is doing well, having notched third-quarter net income of US$2.5 billion, or $1.45 a share — $0.17 higher year over year.

Revenue, not surprisingly, was also up, rising to US$13.1 billion from $12.5 billion, although free cash flow actually fell to US$1.7 billion from $2 billion.

Telus maintains trend

Telecom — specifically, Canadian telecom — is another sector now worth looking at.

Take a look at a chart for Telus Corp. (TSX─T). Not only has it maintained its trend, but it also shows its market outlook is staying true to its 40-week moving average.

Then, there’s Ma Bell. Although BCE Inc. (TSX─BCE) has been flat lining for almost a year, it’s not breaking down, simply going through a consolidation phase.

Buying near the bottom of BCE’s pattern — at roughly $52-$53 a share — makes sense, as does waiting for a breakout near $55. Either way, BCE’s healthy dividend and strong relative strength now make its shares attractive.

Although Rogers Communications Inc. (TSX─RCI.B) has had the bumpiest ride in Canadian telecom, its ride has been smooth compared with that of Canada’s banks and energy plays.

Nevertheless, Rogers will have some trouble facing its old highs near $48 a share. But it now appears to be breaking out of the bumpy holding pattern it’s been tracing over the last two years.

salesforce.com is basing

You might also consider those stocks whose stock market indicators are now forming a basing pattern.

Although plenty of names fit this bill, two U.S. stocks in particular — salesforce.com, inc. (NYSE─CRM) and TASER International, Inc. (NASDAQ─TASR) — have recently caught my attention.

salesforce.com, based in San Francisco, provides cloud computing.  And in the August correction, it managed to stay above its 200-day moving average. So, a breakout above $75 would be bullish.

Arizona-based TASER makes electronic weapons like, well, tasers.

And although its shares were tasered during the market correction, they now seem to be building a nice-looking base of the phase 1 variety.

Specifically, TASER is now in an uptrend, albeit a bumpy one. Indeed, a breakout through $24 would be electrifying.  (Sorry, I can’t help myself!)   Just don’t be surprised if TASER turns out to be a big mover over the winter months.

In the meantime, people must be tasering each other left, right and centre because the company is raking in the cash.

For the three months ended June 30, for example, TASER’s net income zoomed to US$6.1 million, or $0.11 a share, from $3.9 million, or $0.07 a share, for the similar period in 2014.

Sales also presented a bright picture, rising to US$46.7 million from $37.2 million, while gross margin grew to US$30.7 million from $23.2 million. 

 

Investor’s Digest of Canada, MPL Communications Inc.
133 Richmond St. W., Toronto, On, M5H 3M8, 1-800-804-8846

Comments are closed.