NEW YORK (TheStreet) -- Good day, traders!
1. First, lets look at Bill Gates's baby, Microsoft.
Microsoft gained 0.74% on Tuesday to close at $43.52.
- Tuesday's range: $43.00 - $43.59
- 52-week range: $30.84 - $45.71
- Tuesday's volume: 21,433,689
- Three-month average volume: 28,610,500
Microsoft looks good at its current price, because Tuesday the chart formed a bullish engulfing signal right at the bottom of the trend channel. This tells us to buy the dip. Microsoft has pulled back about 6% over the last few weeks but found support and bounced off the 50-day simple. At the bottom of the pullback, the chart formed a morning star doji, followed by a gap up, then two days of indecision. Tuesday's candlestick declared a bullish winner in the battle between the bulls and bears. Plus, Tuesday's action pushed the two-day exponential moving average over the t-line, which piques my interest as a buy.
I'd look to enter this trade on strength above $43.31. I'd set a stop at about $43, as a close below there would confirm lower trading. I would first target the 52-week high of $45.71, then add to the position on the dips and take profits at the peaks. Stay long until you see a sell signal, or a close below the t-line.
2. Now, let's look at the airline company, Southwest Airlines.
Southwest gained 0.21% on Tuesday to close at $28.70.
- Tuesday's range: $28.47 - $28.80
- 52-week range: $12.64 - $29.70
- Tuesday's volume: 4,276,735
- Three-month average volume: 5,967,830
Southwest popped up on my scanner on Monday when the two-day exponential moving average crossed over the t-line, and the t-line crossed over the 20-day simple moving average. This is another case of buying the dip, since Southwest is in a strong, long-term uptrend and trades within a pretty orderly channel. The chart trades up to a new 52-week high, then pulls back to the 50-day simple moving average and repeats.
So right now, Southwest found support at the 50-day SMA and is trading back to the top of the trend channel. I'd look to enter this trade above $28.44. I'd set my stop at about $28. I will target the top of the trend channel, take partial profits at the top and wait to buy the dip when the price comes back to test the 50-day SMA and repeat. Stay long until you see a confirmed sell signal, or a close below the t-line.
3. Lastly, lets look at the weight-loss company, Weight Watchers.
Weight Watchers traded lower on Tuesday, losing 1.2% to close at $22.97.
- Tuesday's range: $22.88 - $23.55
- 52-week range: $19.09 - $41.44
- Tuesday's volume: 364,157
- Three-month average volume: 668,053
Weight Watchers was a rounded-bottom breakout on July 30, which was also the day WTW reported positive earnings. WTW is up 15% since that report. Now there is likely to be a small pullback, which should offer us a better entry. Tuesday saw the formation of a bearish engulfing signal, which implies that prices will move lower Wednesday. There is resistance at Monday's high of $23.68, so watch this area to add to the position on a break above this level. There should be support at $22.60, so with that, I would open a quarter of a position above this level.
Enter above $22.60. I'd set a stop at $22.25 or so. I'd target the 200-day simple moving average, which is about 10% to the upside from Tuesday's close. Stay long until you see a confirmed sell signal. Let the trade work.
Good luck traders!
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At the time of publication, the author held no positions in any of the stocks mentioned, although positions may change at any time.
This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.
Now let's look at TheStreet Ratings' take on some of these stocks.
TheStreet Ratings team rates MICROSOFT CORP as a Buy with a ratings score of A-. TheStreet Ratings Team has this to say about their recommendation:
"We rate MICROSOFT CORP (MSFT) a BUY. This is based on the convergence of positive investment measures, which should help this stock outperform the majority of stocks that we rate. The company's strengths can be seen in multiple areas, such as its revenue growth, largely solid financial position with reasonable debt levels by most measures, solid stock price performance, reasonable valuation levels and good cash flow from operations. We feel these strengths outweigh the fact that the company has had sub par growth in net income."
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- MSFT's revenue growth has slightly outpaced the industry average of 12.0%. Since the same quarter one year prior, revenues rose by 15.6%. This growth in revenue does not appear to have trickled down to the company's bottom line, displayed by a decline in earnings per share.
- MSFT's debt-to-equity ratio is very low at 0.25 and is currently below that of the industry average, implying that there has been very successful management of debt levels. To add to this, MSFT has a quick ratio of 2.31, which demonstrates the ability of the company to cover short-term liquidity needs.
- Compared to its closing price of one year ago, MSFT's share price has jumped by 34.82%, exceeding the performance of the broader market during that same time frame. Regarding the stock's future course, although almost any stock can fall in a broad market decline, MSFT should continue to move higher despite the fact that it has already enjoyed a very nice gain in the past year.
- Net operating cash flow has significantly increased by 61.17% to $9,514.00 million when compared to the same quarter last year. The firm also exceeded the industry average cash flow growth rate of 41.10%.
- You can view the full analysis from the report here: MSFT Ratings Report
TheStreet Ratings team rates SOUTHWEST AIRLINES as a Buy with a ratings score of A+. TheStreet Ratings Team has this to say about their recommendation:
"We rate SOUTHWEST AIRLINES (LUV) a BUY. This is based on the convergence of positive investment measures, which should help this stock outperform the majority of stocks that we rate. The company's strengths can be seen in multiple areas, such as its impressive record of earnings per share growth, compelling growth in net income, revenue growth, largely solid financial position with reasonable debt levels by most measures and notable return on equity. We feel these strengths outweigh the fact that the company shows low profit margins."
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- SOUTHWEST AIRLINES reported significant earnings per share improvement in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past two years. We feel that this trend should continue. During the past fiscal year, SOUTHWEST AIRLINES increased its bottom line by earning $1.06 versus $0.56 in the prior year. This year, the market expects an improvement in earnings ($1.79 versus $1.06).
- The company, on the basis of net income growth from the same quarter one year ago, has significantly outperformed against the S&P 500 and exceeded that of the Airlines industry average. The net income increased by 107.6% when compared to the same quarter one year prior, rising from $224.00 million to $465.00 million.
- The revenue growth significantly trails the industry average of 51.0%. Since the same quarter one year prior, revenues slightly increased by 7.9%. Growth in the company's revenue appears to have helped boost the earnings per share.
- The current debt-to-equity ratio, 0.37, is low and is below the industry average, implying that there has been successful management of debt levels. Despite the fact that LUV's debt-to-equity ratio is low, the quick ratio, which is currently 0.63, displays a potential problem in covering short-term cash needs.
- Current return on equity exceeded its ROE from the same quarter one year prior. This is a clear sign of strength within the company. Compared to other companies in the Airlines industry and the overall market on the basis of return on equity, SOUTHWEST AIRLINES has underperformed in comparison with the industry average, but has exceeded that of the S&P 500.
- You can view the full analysis from the report here: LUV Ratings Report
Aaron Burt is based out of Sonoma County California, and is a contributor for hitandruncandlesticks.com. He focuses on short-to-intermediate term trades using candlestick analysis as his baseline for his trade ideas. He is a ghostwriter for candlestick analysts. He trades daily and analyzes charts daily. He trades charts, not news; news is subjective, but charts are factual. Follow him on Twitter @aarongallaher.