Regular readers are familiar with the extensive fundamental screening process that we employ in our hunt for the world’s most knowledge-intensive companies, as well as the relative strength point-and-figure technical charting element of our process. Now and then, it is interesting to ‘test’ changes in analyst ratings of various stocks that we can see in our universe in order to see how viable those assessments are from a purely technical standpoint. Today, there were three notable upgrades in analysts’ recommendations:
With respect to Alliance Data, we would be cautious– the stock has enjoyed a very strong multi-year high performance uptrend and seems to be consolidating those relative gains, a trend that could continue for some time as support is not very close. Expeditors has perhaps the most intriguing formation of the group as it seems to have established a relatively un-impinged uptrend after forming a base and overcoming resistance in the form of the downtrend that began in 2011. Hormel, while in a solid, multi-year uptrend, is extended both over time as well as with respect to the 45-degree bullish support line (BSL).
Both Disney and SL Green Realty suffered analyst downgrades today (though neither was rated as a ‘sell’).
While we can plainly see the (above highlighted) risks of over-extension in the relative performance of Disney’s stock, that of SL Green appears to be technically sound with good support from the BSL (in spite of the recent pullback).
These relative strength charts help illustrate the importance of a technical component in portfolio construction– whether a company is a Knowledge Leader or not becomes less important when we encounter a stock that is in a structural downtrend, has violated support, is over-extended, or faces significant resistance.
