I recently initiated a new long position for my book that does not look like an imminent home run at first. Mind you, it's a trade, I am not emotionally connected. One firm that caught my eye of late has been Kimberly-Clark (KMB) . I first took a look at the name, first because it trades a forward-looking PE of only 17 times versus 19-plus for the S&P 500.
For those unaware, this is the firm behind Kleenex, Scott, Huggies, Kotex, Poise, and Depend. In other words, this is a "prime" example of a firm facing price pressures as well as margin compression due to the way Amazon (AMZN) does business. There is something about this firm that AMZN cannot control, though: the weak dollar.
Kimberly sells its wares in 175 countries. Nearly 25% of the world's population purchases something made by this firm every day. Of those brand names that I just mentioned, at least one is either number one, or number two in their specific category in 80 countries. Oh, and for those who have not noticed, the U.S. dollar is softening versus its peers once again.
One can easily see the way the firm bounced off its lows in early November, despite the lack of positive money flow. This suggests some exhaustion on the offer side. By the way, this lack of pressure also coincides with the downward turn made by the US Dollar Index (DXY). Our Fibonacci levels indicate to us that the stock is already approaching the 38.2% re-tracement level above $118.
It looks to me that for the inverted head and shoulders formation to complete, this stock will have to surpass that level, and target prices somewhere between the 50% and 61.8% re-tracements. Relative strength is still quite neutral, though improving. The moving average convergence divergence (MACD) showed us a bullish crossover back in early November.
Along those lines, the 12-day exponential moving average (EMA) is now in positive territory, and, as of yet, has not given off any indication of flashing a negative fish-hook.
In my opinion, gang, you can still make $5 to $8 dollars on the long side of the equity here. You just have to simultaneously watch dollar valuations. The DXY heads back toward $95 and all bets are off.
(This is an excerpt from Stephen "Sarge" Guilfoyle's Morning Recon, which now appears exclusively on Real Money, our premium site for active traders. Click here for a free 14-day trial and receive Morning Recon every day, along with exclusive columns from Jim Cramer, James "RevShark" DePorre, technical analyst Bruce Kamich and more.)
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