Real Money Charts (March 13, 2008)
Here are the charts for my Real Money column on March 13th: TOL, MDC, RIO, SID, SDS, and FLEX.
Yesterday I commented on the silliness that surrounded the issue of whether Robert Toll deserved his bonus in light of the poor performance of the stock. Now, I don’t care to rehash that issue here. Suffice it to say that this isn’t Russia (at least, not yet). But I got a slew of emails in response to my comment, many of which just said, “What’s your take on the stock?” Well, my take hasn’t changed. I still think TOL is a sell on tags of $23 – $24. Until the stock can break through that formidable level of supply, I’d avoid this stock. And if you’re just itching to buy something in this industry, then try…
…MDC Holdings (MDC). From a technical standpoint, the stock broke out of a downtrend in mid-January. Yes, it’s retraced the entire move, but it’s still above the December/January double bottom. Also, from a fundamental standpoint, MDC has solid fundamentals (that is, relative to the rest of the industry) because the company never makes big bets on land development. Its business model has always been to buy finished lots whenever possible, throw some sticks on them, and sell the homes quickly. As such, the downturn in the market didn’t hurt MDC as much as the gunslingers like Lennar (LEN) and Beazer (BZH). As for me, I’m avoiding the whole group…but to those who are looking for a toehold, this might be a good place to start.
This weekly chart of RIO is pretty bullish at first glance. But over the past several weeks, the stock has stalled out and that concerns me a bit. This could have the makings of a double top though it’s a bit premature to come to that conclusion now. To play it safe, I’d keep track of this uptrending support line that connects the last three extreme lows. That’s where I’d look to buy.
This weekly chart of SID looks a bit better. The stock is quite risky to buy at this point because it is so far above the bottom of the channel. In this nasty market, I’m always hesitant to buy anything unless it is very close to a reliable support level that, if broken, will allow me to get out with a small loss. Here, the stock is up pretty high. I’d be patient and wait for the stock to get closer to support. Then I’d buy. Would I short? No way — not in a strong uptrend like this!
The SDS is the inverse S&P 500 on steroids. It moves almost 2-to-1 against the S&P, so when the S&P is weak, SDS bulls rejoice. I like to use this ETF as a method of market analysis because it helps me overcome my bullish bias. It’s easier for me to buy into a nice chart like this than it is for me to short a toppy chart. This just feels more natural. I think any further pullbacks in SDS should be stopped by the 50-day moving average. That’s what happened in late February, and I’d expect the same now. So that’s where I’m waiting to buy.
FLEX is really an ugly chart. Lots of volatility in January, followed by a steady decline in February and into March. One reader has a bullish bias and is looking for a move back to $12. Maybe so, but I’d first like to see the bears test $9 first. Until then, this is weak stock that’s showing little signs of getting up off the floor. Pass!
Be careful out there.