We have non-urgent news and price action today: a few trading ideas, and a possible new CEO at American International Group (AIG) this week.
I don’t usually comment on the broader market, but today I think it’s important to do so because sometimes people mistake a couple of down days in the market as indicative of the beginning of a market correction. From my point of view, based upon experience and patterns in the stock market index price charts, I think we’re seeing the exact opposite situation.
The S&P 500 index ran up through the end of February, then traded sideways for two months, leading to a very narrow trading range in May, at its recent highs. That quiet trading near the top of a trading range usually leads to a price breakout and a new run-up.
Suddenly we’re seeing a pullback today, and my instinct tells me that this is a shakeout chart pattern. On the price chart, a shakeout has a “V” shape, indicating a very quick fall-and-rebound in the price of an index or an individual stock. (You can see that the June 2016 Brexit vote caused a very exaggerated shakeout pattern on the S&P 500 chart, followed by an immediate run-up.)
There are two types of stocks that I like to buy on market pullbacks, whether the pullbacks are quick or prolonged. I like to buy undervalued growth stocks that have fallen with the market but are not haunted by any bad news; and I like to buy stocks that are showing strength during a market downturn. In watching for those two scenarios today, I would buy Quanta Services (PWR) on its pullback; and BP plc (BP), Cavium (CAVM), ExxonMobil (XOM) and PulteGroup (PHM) on their strength today.
According to the Wall Street Journal, American International Group (AIG) is about to sign a contract with Brian Duperreault for the position of CEO. Duperreault is a veteran of AIG and the current CEO of Hamilton Insurance. He’s also 70 years old, and will likely focus on steering the ship while also grooming a successor.
The CEO appointment is going to relieve a lot of pressure on the share price. If you’ve been waiting to buy AIG, now’s the time to jump in. Strong Buy.
I reported that TiVo Corp.’s (TIVO) earnings release was butchered by the financial news media last week. The share price subsequently suffered, as investors were given the false impression that the company did not fare well, when in fact the EPS number came in 48% higher than the analysts’ consensus estimate. I found the phenomenon alarming enough that I’ve been in touch with TiVo’s President, and arranged a phone appointment with TiVo’s CFO on May 12. While I’m sure I’ll need to keep components of our communications private, my goal will be to determine whether TiVo will offer more clarity in its future earnings reports, so that media representatives do not repeatedly misconstrue or miscalculate the numbers. I should have more details for you in my May 16 weekly update. At this point, the share price is cheap and the dividend yield is 4.2%. I see no reason not to buy here. Strong Buy.