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Trade Recommendation: Ride ETN and EW on Breakout

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The S&P 500 Index (SPX) flexed its muscles on Friday, December 8, as it gapped up, opening nearly 10 points higher than its previous close. With volume going below its 20-day average, the market’s telling us that sellers are running out of ammunition. The slowdown in selling has enabled bulls to push the index up, closing almost the same level as the day’s high.

The price action on December 8 affirms our bullish view. With that sentiment, let’s continue trading stocks that are on the verge of breaking out.

ETN – Eaton Corporation

The stock has suffered as much as a 42.25% loss in value during the course of its 3-year downtrend. It almost touched a high of 80 back in 2014, but bears claimed that level and sent the stock to as low as 46.19 in 2016. Fortunately for the bulls, the stock respected that support and used it to generate one higher low after another. The consecutive rallies has given ETN momentum to beach resistance at 80, albeit briefly.

While the bears continue to own that resistance level, technical analysis reveals that it’s only a matter of time before bulls conquer that level with conviction. Weekly and monthly charts reveal a large bullish reversal pattern that can take ETN to a new five-year high. Breach 80 with heavy volume of 11 million in the daily chart should attract momentum traders and give the stock a clear path to our target of 120. More importantly, breakout of this three-year resistance level should restart the uptrend for ETN.

Weekly ETN Chart

Monthly ETN Chart

Summary of Strategy

Buy: breach of 80 with volume of 11 million

Support: 76 and 72

Target: 120

Stop: A close below 72 negates this trade call.

EW – Edwards LifeSciences Corporation

While EW technically remains in an uptrend, it suffered as much as a 33.37% loss in value as it went through a massive corrective phase. It went as high as 121.75 in late 2016 before getting sent back by bears to as low as 81.12 in under two months. Just like ETN, however, EW used that support level to rally and post a series of higher lows. Currently, the stock is threatening to finally breach resistance at 120.

Technical analysis reveals a large bullish continuation pattern that can signal the end of EW’s corrective phase. In addition, indicators show that bulls are in a good position to take out 120. The last candlestick on the weekly chart is a hammer which indicates the presence of buyers above 110. In addition, RSI shows that the stock is far from oversold territory, giving it room to make a move up. Lastly, volume has picked up which hints that a significant number of market participants are showing interest in the stock.

The strategy is to wait for the chart to break resistance at 120 with over 9 million in volume in the daily chart. Breach of this level will attract momentum traders and may lift the stock to our target of 160. It is also important to note that there is no known resistance above 120. Hence, the stock may reach our target without much of a struggle.

Weekly EW Chart

Monthly EW Chart

Summary of Strategy

Buy: breach of 120 with volume of 9 million

Support: 112 and 110

Target: 160

Stop: A close below 10 invalidates this trade view.

Featured image courtesy of Shutterstock.

Important: Never invest (trade with) money you can't afford to comfortably lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here. Trade recommendations and analysis are written by our analysts which might have different opinions. Read my 6 Golden Steps to Financial Freedom here. Best regards, Jonas Borchgrevink.

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3.7 stars on average, based on 253 rated postsKiril is a financial professional with 4+ years of experience in financial writing, analysis and product ownership. He has passed all three CFA exams on first attempt and has a bachelor's degree with a specialty in finance. Kiril’s current focus is on cryptocurrencies and ETFs, as he does his own crypto research and is the subject matter expert at ETFdb.com. He also has his personal website, InvestorAcademy.org where he teaches people about the basics of investing. His ultimate goal is to help people with limited knowledge of finance and investments to create investment portfolios easily, and in line with their unique circumstances.




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Stock Picks

Stock Pick: Walt Disney

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Walt Disney Company (DIS) is one of the most popular mass media and entertainment companies in the world. The conglomerate stands as an entertainment empire that operates in three business segments: feature film, TV, and theme park. Currently, Walt Disney has a labor force of 195,000 across 45 countries. In 2017, the company generated revenues of $55.1 billion.

Technical Analysis of Walt Disney (DIS)

Walt Disney posted its all-time high of $122.08 in August 2015. From that point, the stock entered a multi-year consolidation period. It pulled back to as low as $86.25 in February 2016 before generating a bullish pin bar on the monthly chart, suggesting that a short-term bottom was in place. This attracted bottom fishers and bargain hunters who helped push the stock to $116.10 in April 2017.

Unfortunately for buyers at this level, $116.10 was a lower high. This was a clue that DIS was still consolidating. It could also have been a sign that bulls have lost their momentum. Before panic ensued, however, DIS generated a higher low of $96.20. This dispelled the notion that DIS was ready to end its uptrend. More importantly, it emboldened more investors to place buy orders.

Technical analysis shows that DIS has taken out resistance of $110 in July 2018. This triggered the break out from the symmetrical triangle pattern. The price action marks the end of the three-year consolidation and the resumption of the uptrend.

On top of that, DIS has only one more resistance left to face: its all-time high of $122. Take that out and its all blue skies for the stock.

Fundamental Analysis of Walt Disney (DIS)

In addition, we have fundamental analysis to back our bullish view. The trailing twelve-month price to earnings ratio of DIS is 14.68. The stock is significantly undervalued considering that it has a five-year maximum of 25.30. This tells us that the stock is currently trading at a discount and it is likely a good buy at this level.

In addition, Walt Disney is set to acquire 21st Century Fox for $71.3 billion dollars after it received shareholder approval in July. While the merger was scheduled to go through early next year, recent reports suggest that the deal could be completed within the year. If the merger pushes through, DIS can become a strong long-term play. The purchase of Fox’s assets enables the media giant to grow its content vault and launch its own streaming service by next year.

The strategy is to buy on dips as close to $114 as possible. There’s a lot of excitement surrounding the stock even in the midst of general market volatility. As long as DIS stays above this level, it is set to take out its all-time high of $122 and rally to our target of $140.

The timeline for the target is more than six months.

Weekly DIS Chart

Monthly DIS Chart

As of this writing, the Walt Disney stock (DIS) is trading at $118.27.

Summary of Strategy

Buy: On dips as close to $114 support as possible.

Target: $140

Stop: Close below $110.

Important: Never invest (trade with) money you can't afford to comfortably lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here. Trade recommendations and analysis are written by our analysts which might have different opinions. Read my 6 Golden Steps to Financial Freedom here. Best regards, Jonas Borchgrevink.

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3.7 stars on average, based on 253 rated postsKiril is a financial professional with 4+ years of experience in financial writing, analysis and product ownership. He has passed all three CFA exams on first attempt and has a bachelor's degree with a specialty in finance. Kiril’s current focus is on cryptocurrencies and ETFs, as he does his own crypto research and is the subject matter expert at ETFdb.com. He also has his personal website, InvestorAcademy.org where he teaches people about the basics of investing. His ultimate goal is to help people with limited knowledge of finance and investments to create investment portfolios easily, and in line with their unique circumstances.




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Analysis

FedEx Goes Looking for New Lows

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By Dmitriy Gurkovskiy, Chief Analyst at RoboMarkets

At a recent Federal Reserve meeting, the market was made clear that interest rates were going to rise, which means that the burden on business in the form of interest on borrowed funds will increase. The ‘cheap’ money has run out, and now overvalued companies will be heading to their real quotes. If you look at the market, the corrections are already beginning, and there is a decline in each sector. Under these conditions, stocks will be forming ranges, although in most cases they are already here. If the price is at the lower boundary, then we should expect an even greater decline, as new support levels will be formed lower.

The ‘weak link’ under these conditions will be the companies that have shown a significant decrease in profits in the current quarter relative to the previous quarter and to similar periods of the previous year.

Tips for trading here should be sought in technical analysis, since the fundamental one will not show negative trends in Q3, as reports will be provided for the previous period, and they will be compared with similar periods of last year, which in most cases will show a positive trend.

In this situation, it is possible to consider trading for lowering overpriced companies, but the trader needs to be aware of the risk they will be taken taking, as due to the gaps at the opening, losses can be fatal.

FedEx, a leading mailing operator, is among such companies that are set to decline in the near future. Quarterly reports show an increase in profits compared to the same period last year. With this in mind, it would seem, there is no reason for concern, as the fall in profits in Q3 this year was also observed last year.

FedEx

Meanwhile, the short float is as low as 2.01%. The debt to capital ratio is less than 1, which also indicates the company is good to invest into.

On Oct 18, FedEx announced the acquisition of Manton Air-Sea Pty Ltd, a leading logistics service provider based in Australia. This will allow FedEx to increase its presence in the Australian market. The transaction is scheduled to be completed by the end of this year.

Analyzing other financial indicators, the negative details can only be found in the discrepancy between the Q3 earnings per share predicted values, since the EPS expectations were at $3.80, and in fact it turned out to be just $3.46, which resulted in the company ending its trading session with a 1.7% decline.

Without going into details, the company’s profit is growing, dividends are paid, and there is no reason to worry, especially when the index is being bought heavily during such falls. Let’s get back to the reports however, and we’ll see the profit in Q3 decreased by 42% compared to the previous quarter, although last year it was only by 16%.

In July, Amazon announced its new project, Delivery Service Partners (DSP), as mentioned earlier in one of our analytic reports. This led to the largest international postal operator’s decline. The project by Amazon enables starting your own shipping business under Amazon brand. This project is already working and the goods, despite the problems that arise, are being shipped. This means that FedEx and UPS are guaranteed to lose some of their income. In the long term, the development of DSP will create an even more serious competition against postal operators.

Amazon’s policy led to FedEx shares losing around 16%, after which the price tried to recover, but nothing came out of it, and now it’s trading around the year’s lows. Another negative fact is that the price went below the 200-day SMA, which last occurred in 2015. Last time, after the SMA breakout, the price fell by 36% from its highs. The last fall was accompanied with the largest trading volume over the last 2 years, which increases the likelihood of further price fall.

The nearest support is around $200. Further decline may be news-driven and come later, as it often happens. A short-term price increase to the resistance at $240 USD is possible, but after that, a rebound and a more serious price fall to $200 may follow. With larger volumes or a consolidation range, a reversal may occur.

To sum up

According to the Federal Reserve’s latest meeting minutes, rate hikes are going to happen both this year and next. This will increase the cost of borrowed funds, which will lead to consolidation of the stock market and a possible sharp decline when approaching the highs. Some investors will close their positions on highs, trying to lock in as much profit as possible, after which they can move to less risky instruments such as bonds, whose yields will only increase with rate hikes.

Yet another crisis coming is often a surprise for investors, because usually everything starts with a small correction, which then rapidly develops into a market collapse and leads to a massive fall in stock prices. For this reason, investing in companies at current prices is not a good idea.

In this situation, it is best to look for small and unknown companies to buy, or to focus on those that are just starting their IPO’s.

Disclaimer

Any predictions contained herein are based on the authors’ particular opinion. This analysis shall not be treated as trading advice. RoboMarkets shall not be held liable for the results of the trades arising from relying upon trading recommendations and reviews contained herein.

Important: Never invest (trade with) money you can't afford to comfortably lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here. Trade recommendations and analysis are written by our analysts which might have different opinions. Read my 6 Golden Steps to Financial Freedom here. Best regards, Jonas Borchgrevink.

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4.6 stars on average, based on 15 rated postsHaving majored in both Social Psychology and Economics, I went on to continue my education in post graduate. Later I worked as a team lead of a tech and fundamental analysis lab in the Applied System Analysis Research Institute. This helped me to acquire all necessary skills and experience to become a successful trader and analyst, as well as a portfolio manager in an investment company. I'm a pro in the financial field and the author of articles for various international media. I also hold the position of Chief Analyst at RoboMarkets.




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Analysis

Boeing Still a Good Investment, but Not Now

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By Dmitriy Gurkovskiy, Chief Analyst at RoboMarkets

In one of our previous articles, we spoke about the rising demand of pilots and air transportation, which made us focus on relevant companies. Another important aspect here is aircraft, without which no air transportation is possible. So today, we’ll analyze one of the largest aircraft manufacturers out there, Boeing.

Boeing Company (NYSE: BA) is a leading aircraft, military and space equipment manufacturer. Headquartered in Chicago, IL, the company mostly operates in Seattle, WA. Boeing is among the top three military equipment companies in the US by the yearly order volume. Around 50% of the company’s budget accounts for military orders.

Over the last four years, Boeing’s yearly revenue is always somewhere near $90B, while the net profit is steadily growing.

Since 2014, the company’s equity was going down, with the debt growing at the same time, and thus the debt-equity ratio is currently not the best one.

Despite the debt, however, the investors get the dividends regularly, and those have been growing speedily since 2014: from $1.94 per share that year to $6.50 in 2018. Meanwhile, the growing demand led to Boeing supplying 763 aircraft in 2017. This was a record high, and the earnings went up from $4.985B to $8.197. The price per share also rose by over 100%, breaking out $300. In 2018, the company is going to supply 912 aircraft, or 20% more.

Boeing Contracts

Recently, Boeing got a contract for $62.7M which included maintenance and modification of F/A-18 и EA-18G. The contract is expected to be fulfilled by Sep 2019.

Another contract won by Boeing is worth $805M and includes developing, manufacturing, testing, and supplying for pilotless aircraft to the US Air Force by 2024.

The US Air Force also has yet another contract with Boeing, which is worth $9.20B and includes both aircraft and flight simulators. At the first stage, the company will get $813M to supply 351 Advanced Pilot Training aircraft and 46 simulators. The overall deadline is 2034.

This is just to name a few, and still one could clearly understand Boeing has orders for at least the next 10 years.

Boeing is also a significant player in the international military business; with the emerging countries increasing their budgets in the light of global geopolitical uncertainty, the company is sure to get more orders.

Apart from military aircraft, Boeing is planning to launch an air taxi prototype next year, which would carry passengers for short distances, while the company is also determined to create an air transport management system within 5 years.

All this makes the outlook perfect, with both dividends and share prices growing steadily. Technically, however, there is some extreme volatility, which shows investors are uncertain; some are closing their positions to lock in over 100% profit, others are, conversely, buying. This led to the price forming a wide range between $315 and $370. At this rate, it may well reach $400 and then bounce back to $300.

Technical Analysis

In 2016, Boeing shares started rising from $100, with the volumes growing, and reached the high at $350, i.e. those who bought at $100, started selling at $350. This means one should better wait for higher volumes and lower prices, as well as some good news, before buying, rather than going long straight away.

Alphabet Inc (NASDAQ: GOOG) experienced a similar situation, when the price was between $1,000 and $1,200, and then, when good earning reports came out, it reached $1,270. Then, Google shares went down again, and are now trading at $1,150, while being fundamentally very strong. So, it may start rising again soon, but at lower levels.

You remember an old saying ‘Buy rumors, sell facts’, of course. This is true with Boeing as well. The news on the company plans must be already priced into the shares, so before adding Boeing to your portfolio, you’d better wait for some lower prices.

Disclaimer

Any predictions contained herein are based on the authors’ particular opinion. This analysis shall not be treated as trading advice. RoboMarkets shall not be held liable for the results of the trades arising from relying upon trading recommendations and reviews contained herein.

Important: Never invest (trade with) money you can't afford to comfortably lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here. Trade recommendations and analysis are written by our analysts which might have different opinions. Read my 6 Golden Steps to Financial Freedom here. Best regards, Jonas Borchgrevink.

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4.6 stars on average, based on 15 rated postsHaving majored in both Social Psychology and Economics, I went on to continue my education in post graduate. Later I worked as a team lead of a tech and fundamental analysis lab in the Applied System Analysis Research Institute. This helped me to acquire all necessary skills and experience to become a successful trader and analyst, as well as a portfolio manager in an investment company. I'm a pro in the financial field and the author of articles for various international media. I also hold the position of Chief Analyst at RoboMarkets.




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