Candlestick Forum

Long Term Stock Picks Newsletter

February, 2015

Current Market Outlook:

The market is a bit shaky right now – we may be very near a short-term

bottom, but be very cautious until we see a clear signal one way or another.

Current Market Commentary:

To say that the markets ended January “ingloriously” could be the

understatement of the month.

Take a look at Friday’s intraday DJIA and NASDAQ charts to see what I

mean:

Things looked fairly rosy around 2:30 P.M. EST – about an hour before the

markets closed. In fact, the Nas was in positive territory at that time.

But as you can see, both markets fell off their respective cliffs during that

last hour, closing at the lows of the day.

January is historically not a good month for the stock market in general.

The market typically bottoms in October, has a nice move back to the

upside in November and December, tanks a bit in January, and usually

romps northward from February through April.

Will the 2015 market be true to historical form? Only time will tell, of course.

But – just as always – we will let the market and our candlestick analysis

methods tell us what it’s going to do.

How about the economy in general – good or bad?

It depends on to whom you ask that question.

For example, if you’re in the oil business – you would say things look pretty

bleak. With the collapse of crude oil prices, many oil service firms like

Schlumberger and Baker Hughes are laying off workers by the thousands.

But to the general consumer, that same massive price reduction is a

blessing – very similar to a tax cut - since economic data show the lower

price of gasoline is like a $700 a year raise to most American families.

And it seems the consumer is spending their gasoline savings in other

areas. In fact, Q4 2014 consumer spending was brisker than at any time in

nearly a decade. Consumer spending is two-thirds of overall economic

activity, and it rose at an annualized 4.3%, the best since early 2006. That

spending was also due to firming wages, and could be a signal that more

durable growth may be ahead.

But in this “good news, bad news” market, economic growth decelerated

sharply in Q4. Q3 2014 showed a robust GDP expansion of 5% - the best

since 2003. But Q4’s GDP came in at a measly 2.6% annual rate according

to the Commerce Department – a steeper than expected slowdown.

Adding to the market volatility this week - the Fed wrapped up its 2-day

FOMC meeting. The central bank said it sees a rosier economy than it has

in the past, especially noting the improving job market.

But with inflation still below its target, policymakers advised patience. The

Fed sees low inflation as mainly energy-driven.

So the Fed, for now, is basically watching economic developments to see what happens.

According to the New York Times, the Fed won’t raise interest rates until June, at the earliest:

“They don’t want to exclude June from the range of options at this point,” said Tim Duy, an economist at the University of Oregon who follows the Fed closely. “June is still five months off, and they have no intention of deciding just yet.”

On Wednesday the market was initially rocked by the Fed announcement,

with the Dow falling off a cliff, down nearly 300 points from its intraday high

to low. Usually FOMC days and a market rally are as reliable as the sun

rising in the East every morning, but not this time.

The Dow popped back triple digits on Thursday, and it seemed the FOMC

event had just kicked in a day later this time. But as the charts indicate

above, it was back to the downside on Friday.

Obviously, interest rates can’t hover near zero forever. Something has to

give sooner or later.

But it looks like we’re safe until June at least.

All in all, it should be a very interesting year. We will keep you up-to-date

as best we can in the pages of this newsletter.

So let’s see what the charts are telling us…

Major Index Chart Analysis:

Dow Jones Industrial Average

You can see by the chart action what a challenging month January was. It

shows an epic struggle between the bulls and bears.

After two massive head fakes to the upside by the bulls, the bears now

seem to be back in control. Those last three days of trading look like an

Oreo cookie, don’t they?

That also indicates the amount of uncertainty in the market right now.

Sooner or later, either the bulls or bears will reassume control. But for now,

it’s anybody’s guess.

I might err on the side of the bulls, however. The trading action in the range

between 17,000 and 18,000 is now in the lower area of the range, and

stochastics are starting to flatten out in the very oversold area.

So if Monday opens and closes strong, I might recommend that you tiptoe

back into this market. But again – let the market itself tell you what to do.

S&P 500

The S&P 500 chart looks almost exactly like the DJIA’s (except for the

Oreo cookie), so see my comments above for the DJIA.

NASDAQ

The Nasdaq chart looks a little stronger than its DJIA and SPX Big

Brothers. Indeed, small-, mid-cap, and growth stock indexes have been

quietly outperforming for a few weeks now. The relative performance lines

on the Russell 2000 (small cap), S&P 400 MidCap and IBD (Investor’s

Business Daily) 85-85 Index have all reached their highest levels since

September.

The Nas seems to have a nice floor in the 4,600 area. It that level is

breached to the downside, however, it could be “look out below.” But I don’t

think that’s going to happen.

OK, let’s look at some nice stock charts…

Favorite Long-Term Stock Pick of the Month:

Skyworks Solutions Inc. (NASDAQ:SWKS)

About the Company:

Skyworks Solutions Inc (SWKS) – Manufactures analog/mixed signal

ICS, amplifiers, attenuators, detectors, diodes, couplers, mixers and

demodulators.

According to Yahoo Finance:

Skyworks Solutions, Inc., together with its subsidiaries, designs, develops,

manufactures, and markets analog and mixed signal semiconductors

worldwide.

Its product portfolio includes amplifiers, attenuators, battery chargers,

circulators, DC/DC converters, demodulators, detectors, diodes, directional

couplers, filters, front-end modules, hybrids, infrastructure radio frequency

subsystems, isolators, LED drivers, mixers, modulators, optocouplers,

optoisolators, phase shifters, phase locked loops/synthesizers/VCOs,

power dividers/combiners, power management devices, receivers,

switches, technical ceramics, and voltage regulators.

The company also offers MIS silicon chip capacitors and transceivers. It

provides its products for supporting automotive, broadband, wireless

infrastructure, energy management, GPS, industrial, medical, military,

networking, smartphone, and tablet applications.

The company sells its products directly, as well as through independent

manufacturers, representatives and distribution partners.

Skyworks Solutions, Inc. was founded in 1962 and is headquartered in

Woburn, Massachusetts.

Why We Like It:

As you can probably tell from its chart, SWKS has one of the strongest

relative strength ratings in the market. The company is believed to the

supplier of chips for the Apple iPhones and iPads, which could explain the

strength.

According to Investor’s Business Daily, the company is growing at an

annual EPS rate of 23% with a PE ratio of 22.

Last quarter earnings were up 88% and prior quarter’s up 75%. Sales are very strong as well, up 59% over last quarter’s. With a strong ROE of 27% (Return on Equity – anything above 17% is considered world class in some circles) and zero debt, SWKS looks extremely promising as a long-term investment.

I would actually try to buy the stock at a slightly lower level if you can, since

it looks a tad overextended right now. See if it can come back at least to

the $80 area. And it looks like the logical initial stop loss price should be in

the recent support area around $75.

Stock Data

Company Fundamentals

Friday’s Range 82.95 - 84.95

EPS Due Date 4/20/2015

52-Week Range 29.25 - 84.95

EPS % Chg (Last Qtr) 88%

Price % Chg. YTD 14.22%

3 Year EPS Growth Rate 23%

Price % Chg. Last 4 Weeks 12.11%

EPS Est % Chg (Current Yr)

51%

50-Day Avg. Volume 3,579,700

Annual ROE 26.9%

Shares Outstanding 190.7 Mil

Sales % Chg (Last Qtr) 59%

Float 186.8 Mil

3-Year Sales Growth Rate 18%

IPO Date N/A

Debt % 0

Investment Bank Credit Suisse

Market Cap $15.83 Bil

% Mgmt Owns 1.04%

Profit Margin 30.0%

PE Ratio 22

Sector Chips

Dividend Yield 0.6%

Alpha 0.33

Beta 1.78

Chart Analysis:

SWKS – Six Months Daily

As you can see, SWKS is one of the strongest stocks in the market, almost

doubling since its little “panic market” dip back in October.

The better buy point would have been back in the $75 area as the stock

popped out of a nice base, so I would not chase it here. Doing so might be

buying into a climax run. Better to wait to see if it can drift back into at least

the $80 area or slightly below.

Stochastics back up that assessment since they are in the severely

overbought area and angling downward. But SWKS looks like a solid

candidate for the medium to longer term.

Stocks on the Watch List:

There are a few high-momentum stocks I’ve spotted lately that have decent

to great fundamentals as well. Let’s take a look at three of those now…

Avago Technologies Ltd. (NASDAQ: AVGO)

Avago Technologies Ltd (AVGO) – Singaporean designer of analog ICS

for telecom, industrial, automotive and computing markets.

This high relative strength stock is just as strong on fundamentals as well.

Although a little low on annual EPS growth at 16%, the P/E ratio is only 21.

And the recent earnings and sales are exploding! Last quarter earnings

are up 124%, prior quarter’s are up 70%, and last quarter sales are up

115%. Nice! And the ROE is an outstanding 44%.

AVGO looks like a good long-term hold candidate.

Akorn Inc. (NASDAQ:AKRX)

Akorn Inc (AKRX) – Develops pharmaceuticals in specialty areas such as ophthalmology, hospital drugs and injectables.

AKRX sports a stranger chart than our other selections, but check out the chart since the company went public. The stock was a penny stock compared to where it is now just as recently as 2009. It’s near all-time highs now. This one could be a millionaire-maker.

With last quarter earnings coming in at 80%, prior quarter’s up 79%, and last quarter sales at 62%, with a respectable ROE of 27%, AKRX looks like a fairly “healthy” stock to buy.

Valeant Pharmaceuticals International Inc. (NYSE: VRX)

Valeant Pharmaceuticals (VRX) – Develops branded drugs in the areas of dermatology, neurology, and oral health and OTC products.

VRX looks like one of those “Steady Eddie” stocks that just grows and grows for years. It’s a solid GARP (Growth At A Reasonable Price) candidate, with annual EPS humming along at 43% vs. a P/E of less than half that – at 20.

Recent earnings and sales are also solid, with last quarter EPS up 45%, prior quarter’s up 43%, and last quarter sales at 33%. Its ROE is 46%, which is huge. That gap base breakout on big volume in early January was a nice buy signal, and the stock is not tremendously extended from that point. A little bothersome is the company’s debt level at 338%, which could be a problem when interest rates creep up again. But overall, VRX looks like a fine long-term hold.