Finding Winning Charts Amid the Gloom

 | Aug 04, 2014 | 11:45 AM EDT  | Comments
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Every weekend I go over the S&P 500's Daily Action Charts, hand-delivered Saturday morning. All this week on "Mad Money," I have invited some of my favorite chartists to the studio for "Chartnado" week, where actual writers appear and go over their techniques. It's the only time I ever cede the floor to anyone but CEOs.

In preparation for this big week, I went through the charts this weekend with an eye for which ones look best on a 30-week moving average, which happens to be my favorite window and which has served me well.

The charts were by and large hideous, but you don't need me to tell you that. The winners are an odd bunch. First, the biggest positive contingent, by far, was healthcare and healthcare-related. That makes sense, because last week was about a slowing in business worldwide because of Russia-Ukraine tensions, a Portuguese bank rescue and the hedge-fund lawsuit that caused Argentina to default. The endless suggestion that the Fed was behind the losses infuriates me, because these people are never doubted, and they never shut up.

So, what looked good? As always, a handful of pharmacy benefit manager types, which always look good and report terrific numbers: AmerisourceBergen (ABC), Cardinal Health (CAH) and McKesson (MCK). You hardly ever hear these three touted, but they are total go-to when we get wind of any slowdown. Yes, I see that Cardinal is down today off of its weak guidance, but the company has a history of giving weak guidance and then a history of snapping right back. I expect history to repeat itself.

Some device stocks resonated, namely Baxter International (BAX) and Edwards Lifescience (EW), the first owing to a breakup and the second because of a new heart device that I have endlessly hailed as a game-changer. (You can tell I love this group.) Three biotechs: Amgen (AMGN), which had great earnings, Gilead (GILD), where the multiple is a ridiculous 9, even as it is the fastest-growing pharmaceutical company in the world because of its hepatitis C formulation, and Regeneron (REGN), which had both new products and a willing open-market buyer in Sanofi (SNY).

Finally the drugstores, which continue to have amazing numbers: CVS Caremark (CVS) and Walgreen (WAG), the latter of which is benefiting from activism and a potential inversion.

Second-best group? Tech: Apple (AAPL), Hewlett-Packard (HPQ), Microsoft (MSFT) and RF Micro Devices (RFMD). Apple is about a new product store and the iPhone 6, Microsoft and Hewlett-Packard (HPQ) are the PC bottom-calls, with the latter augmented by potential for a decline in raw costs led by a potential weakness in SanDisk (SNDK), Western Digital (WDC) and Micron (MU) pricing.

Three oil-related stocks survived the oil crush: Apache (APA), which is a restructuring potential takeover story, Enterprise Product Partners (EPD), a fabulous pipeline master limited partnership, and National OIlwell Varco (NOV), which had a terrific quarter that some thought was a miss because they didn't know the company well.

Amazing that three retail and retail-related stories made the cut: Starbucks (SBUX) and Under Armour (UA) off excellent quarters, and Home Depot (HD), which I think will be a full-of-hope story.

We had two chemical companies on the list: PPG Industries (PPG) and LyondellBasell (LYB), both of which had huge quarters, rallied up and then fell to support. These are real outliers when it comes to the slowdown thesis, but chemicals are perceived as raw-cost beneficiaries, and they sure are right now.

Finally, we have a couple of special situations: American Tower (AMT), which was a victim of a stupid short-selling raid gone wrong -- all the tower stocks are strong because of endless cellphone build-outs, Snap-on (SNA), an actual hardware technology play, and Brown-Forman (BF.A), a rare decline for that liquor maker. All the rest of the charts were sickly, as you can expect after a 2% decline.

If you believe the market was stabilizing, on the basis of a slowing in the economy, any and all of these stocks should work. They also confirm that it is a slowdown, not a speed-up, despite the endless jeremiads of those Fed-watchers who have the microphone and should have it taken away from them because they have really overstayed their post-recession welcome. 

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