Chris Lau - Seeking Alpha

Sunday, August 31, 2008

Summary Notes:
TSG Weekly Market Watch August 29, 2008 PDF Print E-mail
Written by Matt Blackman

Full Article: http://tradesystemguru.com/content/blogcategory/34/68/

Highlights taken from Matt's Article:
  • Normally, oil hits a seasonal high in mid-October
  • Average earnings held steady at -39% (from -37% two weeks ago, -32% three weeks ago and -22% four weeks ago) versus Q2-07. Financial services were again the worst performers (-98%) followed (again) by consumer services (-37%).
  • Case Shiller home price index is still showing prices falling with the 20 city index showing a year-over-year drop of 15.9% in June down from 15.8% in May
  • year-over-year sales are down more than 35% and sales are off nearly 50% from their peak in December
  • the Chicago Purchasing Manager’s Index jumped from 50.8 in July to 57.9 in August as a combination of the low dollar, strong export demand and a one-time tax rebate supercharged demand for American products (warning: PMI has been on a negative downtrend over the past 4 years)

A stock I've been monitoring is on the consumer side.

Hot Stock: Starbucks Corp.

Summary:
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Starbucks is on a downward trend with few reasons to rally to previous glorifying highs. Until the stock reaches above $18, the stock should not be purchased.

Analysis:
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Starbucks is burning its candle on both ends: fixed input costs are rising, and demand is falling. As a result, the stock is under significant pressure.

The company has responded by:
1) cutting jobs
2) closing locations
3) offering more than coffee i.e. breakfast

Closing locations has a double-edged sword effect: the company cannot grow if it does not increase its presence.

Technical Analysis:
================
Downward price trend established 11/2007 has not yet been broken. Until the stock trades above $18, investors should not place a large amount in this company. The stock might continue to trade lower, it might trend, or it may rally. Observe macroeconomic conditions and enter a position accordingly.

Conclusion:
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Hold Starbucks or average down in small amounts. Monitor store closure rates and promotions. Its recent $2 specialty coffee in the afternoon was successful and if it continues to come up with smart promotions, this would be a fundamental positive for buying into this company.

Let me ask you this: do you go to Starbucks or Tim Hortons (Canada)? How are the line ups?
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