Having said that, we always need to look for signs to determine if this is a (1) mild, short term correction or (2) something that can be more severe. In investment analysis (fundamental or technical), we often build a mosaic to make our best guess. Tonight, my best guess is we are in #1 and #1 can end when we make modest new short term lows (vs November). I say that based on 1.19 put call volume ratio, the market oscillator which is very oversold (over -50), and some similarities I see with bull markets of the past. I see some similarities between October 99 and January 00 in the market charts of last month.
We are probably building fear about the Fed and will soon have buy the news.
I am trying to keep my watch list tight. Here are updates on 2 of the names I find interesting:
I am trying to keep my watch list tight. Here are updates on 2 of the names I find interesting:
LNKD - Fundamentally, the company has new revenue streams in (1) sales navigation and (2) training. We have one Q of earnings acceleration. The company's sentiment had been poor at the bottom of the current cup and handle base following its poor earnings guidance earlier in the year.
Technically, I think the stock is currently building a handle or base within a base. I like that the volume is drying up around the 50 day. I wouldn't rule out a shakeout through the 50 day. I am not as strong at wave analysis, but it possible the stock is in the final stages of a zigzag (5-3-5).
VIAV - Fundamental comments - I have previously pointed out the recent acceleration in earnings. Tonight, I wanted to talk about the initial conditions that can make for a big stock: valuation, sentiment, catalysts. And how these might apply for VIAV. Starting out, whether it is AAPL in 03 or AMZN in 09 (or even in 14/15), a big stock will have a cheap valuation vs its earnings potential, sentiment which is poor or unknown, and multiple catalysts and product cycles that will take it from cheap and unknown or cheap and hated to something much better.
Regarding VIAV sentiment, we have a hated company (for the people that know it) which just threw out its CEO. This company missed almost every Q the last 3 years. We have 3 buys and 9 holds.
Regarding VIAV valuation, I won't recreate the wheel, I'd point you in the direction of the Sandell activist letter to the VIAV board in September.
The only thing I would add is that this was a company that was aiming for 16-20% EBIT margins (before the executive transition) according to prior targets laid out at company analyst days. If they did that, they would probably earn $.80-$1.00 some day.
Regarding VIAV catalysts, in a turnaround, sometimes you have to dream what could go right and why it could go right. With VIAV, we are getting a new CEO. A potential restructuring. They have a great balance sheet and a significant NOL balance to make accretive acquisitions with. Maybe it's a target. Maybe its SDN/NFV portfolio takes off (I prefer a product turnaround to a cost cut in tech). It has a new go to market strategy which just helped it hit its first Q in a long time.
The main fundamental risk to pay attention to is the decline of some of their legacy test businesses. But that decline and a horrible industry environment has hit them hard the last year. What if the decline of legacy slows and their growth products kick in?
On the VIAV technical front, there are 2 possibilities. I suppose the stock could make a lower low vs August. The more probable scenario is the last flat completed in August was the stock's last correction (post its final EPS blowup and firing its CEO) and this stock has now begun a bull run and is now 5 weeks into its first base or handle. If you are an O'Neil trader, you are rooting for a quiet week or 2, and then a breakout from $6.48 (if this turns into a 7 week double bottom), or $6.56 if it is a shorter handle. A retake of the 50 day or a trend line breakout would be the cheater buy points.
Disclosure: I do have positions in VIAV and LNKD.
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