Sunday, March 18, 2012

1,400 accomplished, now where?

From the last few times I wrote, I have emphasized the 1400 level on the S&P 500 being key in keeping this upward momentum going. This past week we did just that, and my thoughts are as long as we can hold 1,388 then 1,421 is our next target to the upside. There has been some fairly positive news on the US front, some concerns over China’s growth, but it seems like the buy and hold value investor is back.

The screenshot above of the S&P 500 1 year chart shows that the 1,400 level has been broken through, but I am a bit cautious very short term here. On a technical standpoint, we broke hard through the upper Bollinger band, the many times this has happened before, we saw a slight correction, usually a couple of percentage points, but not to worry because it seems upward bias is still going.

Also, this past week and a half, we saw some inverse correlation between the Euro/Dollar and the S&P. this is the first time in years I have seen this, especially with the S&P breaking some key resistance levels, with the Euro holding flat to slightly negative along with oil stabilizing. The only thing I can think of is that if Americans really do believe that the US is recovering, they will flock more toward the dollar, it could be something to look at this year.

Upcoming this week, I want to look at DSW, Inc. reporting on Tuesday and FedEx Thursday. Both of these names will give us a better indication of the global growth and US consumer.

DSW Inc. offers a range of assortment of better-branded dress, casual and athletic footwear for men and women, as well as handbags and accessories. We have been seeing a slight move out of high end retail to mark down retail in the past few months (notice TJX Companies and how well they have done). I went into a DSW this past summer and many of the items in the store are brand name mark downs, there were also quite a few people buying as well (Buffalo, NY area).

Fundamentally, they look solid for long term growth. Notice the only reason their profit margin bounced in the previous quarter was because of a tax deduction, which was a one-time only occurrence. Revenue continues to grow at a sustained rate, so I don’t foresee any problems. Middle aged female shoppers will continue to buy these discounted items.

Some graphs on DSW also show how they are fundamentally sound. Profit and Gross margins continue to increase along with cash per share.

I probably will not be buying this, but I would rate it as a long-term buy on this fundamental analysis.
FedEx is next and they report their quarterly earnings this Thursday. This is going to be very important to look at; on a technical standpoint, we have not seen FDX above 100 since 2007, which is also where the broad market index (S&P 500) is right now. Below is a look at their income statement and how well they have done the past year. Net income more than doubled in one year and revenue was up more than 10%. As more people move to online shopping outlets, phone shopping and Amazon, this will definitely benefit companies like FedEx.

Below a screenshot of fundamental graphs showing huge growth in profit and gross margin this past year.

This comparison to the S&P 500 and UPS below shows how FedEx tends to underperform, at least in the past year

I will not be buying this, do not have the funds right now, but would recommend it, thinking it could make a run to one hundred dollars.

That’s all for this week, I’ll be on twitter as much as I can (@peter_eller10) covering these reports and others as they come up, have a good week everyone.

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