John Reese recently penned a story on The Street about 5 guru-tested stocks (Apple (AAPL) , Sony (SNE) , Starbucks (SBUX) , VF (VFC) and Williams-Sonoma (WSM) ). While these five stocks may have been selected with a nod to the techniques used by investors such as Warren Buffett, Peter Lynch and others, those long-term fundamentally driven investors probably would not defer their buying if the chart looked weak. I, on the other hand, I have no problem taking a good investment idea and trying to buy it better. Let me show you want I mean.
In this daily chart of AAPL, above, we can see that AAPL has declined recently to test the 50-day simple moving average line. The longer-term 200-day average line is now moving up and is comfortably below the market. The on-balance volume, or OBV, line has declined a little with the price action and is not signaling major distribution or selling. As prices made higher highs in August, September and October, the 12-day momentum study at the bottom of the chart made lower highs. This lower high in momentum is a bearish divergence and tells us that the rate of the price advance slowed into the recent peak. AAPL stalled around $110 on the way up, so the $110 area could act as support on this pullback. If support does not develop around $110, then a deeper decline into the $100 to $105 area is possible. Looking ahead to 2017, I like AAPL and think it can make a year-end rally that extends into the spring. It is just a matter of where to buy it.
(Action Alerts PLUS, which Jim Cramer co-manages as a charitable trust, also likes Apple and holds it as a portfolio position. Click here for a free 14-day trial subscription to read Cramer and co-manager Jack Mohr's take on AAPL's latest earnings report. SBUX also is an Action Alerts PLUS portfolio holding.)
SNE is the second stock selected, and the daily chart is above. Looking at this chart of SNE, we can see how prices stalled the past two to three months and then broke below the recent range. Prices turned down breaking the 50-day moving average line. The slope of the line has turned down too. The OBV line has weakened the past month, telling us that sellers of SNE have been more aggressive. Momentum has followed the price action and is not diverging, so the pace of the decline has not slowed. It looks like SNE has some chart support in the $28 to $29 area, and it would not be a big surprise for SNE to retest that area in the next few weeks.
In this two-year daily chart of SBUX, above, we can see a slow grind lower. The pattern of lower lows and lower highs is the simple definition of a downtrend. Prices are below the declining 50-day and 200-day moving averages. The OBV line peaked a year ago, and its drift lower tells us that sellers have been more aggressive than buyers. There is no obvious support level on this chart, so it is hard to determine where buyers might decide to re-accumulate SBUX.
Unlike some of the other charts we have looked at, VFC has been in a downtrend for the past 12 months, and while the downside momentum has slowed, sellers still dominate. VFC is below the declining 50-day and 200-day moving averages. The OBV line turned down in July and signals lower prices ahead. There is a bullish divergence between the lower price lows in September and October and higher momentum lows, but that divergence has not resulted in a rally or bounce. VFC will have to develop a base pattern before it merits a buy in my book.
Finally, in this weekly chart of WSM we have little encouragement for the bulls. WSM is below the declining 40-week moving average line. The declining weekly OBV line reinforces the bear case with heavier volume being traded on weeks when WSM has closed lower. The trend-following moving average convergence/divergence oscillator recent rolled over and crossed, giving a new sell signal. WSM should find a bottom eventually, but I do not anticipate it any time soon.