There were some excellent reader requests today and the four that I chose have great upside potential. You'll note that my selection is a bank. The Banks industry group is heating up as I suspected given the stimulus. The other area that continues to perform are various industry groups in the Energy sector that are related to Oil. Oil paused and has been rallying into this week. I don't think the rally for them is over. I nearly had IEO as my diamond in the rough selection today. Keep an eye on those areas of the market. They are very bullish right now.
You'll notice that I like to let you know if I've covered a Diamond before and tell you how much it is up or down since I picked it. I've decided to also examine whether the stop level was ever hit. I'll start reviewing if upside targets were hit as well. That way, if the stock hit its upside target before the stop triggered, it would still have a positive finish. Hope that makes sense.
Today's "Diamonds in the Rough" are: AWK, BHLB, BRK/B, UNP and WEAT.
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Welcome to DecisionPoint Daily Diamonds, wherein I highlight five "diamonds in the rough." These are selected from the results of my DecisionPoint scans, which search for stocks that could benefit from the trend and condition of the market. Remember, these are not recommendations to buy or sell, but are the most interesting of the stocks that surfaced in my scans. My objective is to save you the work of the initial, tedious culling process, but you need to apply your own analysis to see if these stocks pique your interest as well. There are no guaranteed winners here!
American Water Works Co. Inc. (AWK)
EARNINGS: 2/17/2021 (AMC)
American Water Works Co., Inc. engages in the provision of complementary water and wastewater services. It operates through the following segments: Regulated Businesses; Market-Based Businesses; and Other. The Regulated Businesses segment provides water and wastewater services to customers. The Market-Based Businesses segment is responsible for Military Services Group, Contract Operations Group, Homeowner Services Group, and Keystone Operations. The Other segment includes corporate costs that are not allocated to the Company's operating segments, eliminations of inter-segment transactions, fair value adjustments and associated income and deductions related to the acquisitions that have not been allocated to the operating segments for evaluation of performance and allocation of resource purposes. The company was founded in 1886 and is headquartered in Camden, NJ.
AWK is unchanged in after hours trading. I had considered this recently as a "diamond in the rough" so I was happy to review it as a reader request. We could be getting in early on this one and it doesn't require a deep stop level. I covered AWK in the May 26th Diamond Report (up 26% since, stop was not hit) and more recently in the October 1st Diamond Report (up 2.4% since, stop was not hit). After this current pullback, price consolidated and formed a double-bottom. It has been unable to trigger the pattern with a breakout above the confirmation line, but the indicators are quite positive and suggest it will. I've got the stop at 6.8% which is near the 200-EMA. I don't think you have to even set it that deep. Should it drop below the trading range, it is likely not a good hold.
The weekly chart is problematic. Price has drifted out of the rising trend channel and the PMO is on a SELL signal. Of course this was a very steep rising trend channel and price could fix that with a pause like we are seeing now.
Berkshire Hills Bancorp, Inc. (BHLB)
EARNINGS: 1/25/2021 (AMC)
Berkshire Hills Bancorp, Inc. operates as a bank holding company for Berkshire Bank and Berkshire Insurance Group, Inc. The firm offers deposit, lending, insurance, and wealth management products to retail and commercial customers in its market areas. It aims to expand and deepen market share and wallet share through organic growth and acquisition strategies. The company was founded in June 2000 and is headquartered in Pittsfield, MA.
BHLB is unchanged in after hours trading. This is my pick for the day. As I said I was looking at Banks in particular and this one came up in the Diamond PMO Scan today. I really like today's breakout from a longer-term basing pattern. The RSI is positive and the PMO is rising nicely and going in for a crossover BUY signal. The OBV could look better with rising bottoms instead of falling ones, but we have a positive SCTR and that PMO bottom above the zero line is very bullish. The stop is deep and lined up with the 20-EMA.
The weekly chart looks very positive. I have annotated a large "cup and handle" pattern from which price has just broken out of. The 17-week and 43-week EMAs are having a positive crossover right now. The RSI is getting overbought, but it is positive. The PMO is overbought but uninterested in a decline right now. I've marked upside potential to the 2018 low. It could certainly climb past that, but that will be where the rally will be strongly tested so you should prepare for that.
Berkshire Hathaway, Inc. (BRK/B)
EARNINGS: 2/27/2021
Berkshire Hathaway, Inc. provides property and casualty insurance and reinsurance, utilities and energy, freight rail transportation, finance, manufacturing, retailing, and services. It operates through following segments: GEICO, Berkshire Hathaway Reinsurance Group, Berkshire Hathaway Primary Group, Burlington Northern Santa Fe, LLC (BNSF), Berkshire Hathaway Energy, McLane Company, Manufacturing, and Service and Retailing. The GEICO segments involves in underwriting private passenger automobile insurance mainly by direct response methods. The Berkshire Hathaway Reinsurance Group segment consists of underwriting excess-of-loss and quota-share and facultative reinsurance worldwide. The Berkshire Hathaway Primary Group segment comprises of underwriting multiple lines of property and casualty insurance policies for primarily commercial accounts. The BNSF segment operates railroad systems in North America. The Berkshire Hathaway Energy segments deals with regulated electric and gas utility, including power generation and distribution activities, and real estate brokerage activities. The McLane Company segment offers wholesale distribution of groceries and non-food items. The Manufacturing segment includes industrial and end-user products, building products, and apparel. The Service and Retailing segment provides fractional aircraft ownership programs, aviation pilot training, electronic components distribution, and various retailing businesses, including automobile dealerships, and trailer and furniture leasing. The company was founded by Oliver Chace in 1839 and is headquartered in Omaha, NE.
This one was requested by two different readers and I can see why. Currently BRK/B is up +0.09% in after hours trading. The RSI is positive and the PMO has just generated a crossover BUY signal. The OBV is confirming the current rally. Strong overhead resistance is nearing, but given the new BUY signal and positive RSI that is not overbought yet, I would look for a breakout. The stop is set tightly at -6.7%, but as you can see, you could set it even tighter than that.
The weekly chart is very bullish with the exception of the negative divergence on the OBV. The PMO is getting overbought, but certainly could climb higher. BRK/B is nearing all-time highs.
Don't forget, on Thursdays I look at reader-requested symbols, so shoot me an email at erin@decisionpoint.com. I read every email I receive and try to answer them all!
Union Pacific Corp. (UNP)
EARNINGS: 1/21/2021 (BMO)
Union Pacific Corp. engages in the provision of railroad and freight transportation services. Its principal operating company, Union Pacific Railroad Co., operates as a railroad franchise. The Railroad's diversified business mix includes agricultural products, automotive, chemicals, coal, industrial products, and intermodal. The company was founded in 1969 and is headquartered in Omaha, NE.
UNP is down -0.22% in after hours trading. I covered it in the September 15th Diamonds Report (up 5.1% since, stop hit at a 7.5% stop in October on its pullback). I like today's breakout, especially when paired with an RSI that is not overbought and a new PMO BUY signal. The OBV is confirming the move and you can see that in the first part of December, it had a positive divergence with price lows. Might be time for this choo-choo to start chugging!
We have a positive weekly chart. Only problem is the very overbought PMO. However, the PMO has also bottomed twice above its signal line which I do find very positive. The RSI is positive and not overbought.
Teucrium Wheat Fund (WEAT)
EARNINGS: N/A
WEAT tracks an index of wheat futures contracts. It includes the second and third contracts to expire, as well as the contract expiring in the December following the third contract.
WEAT is down -0.16% in after hours trading. It is low priced, so position size wisely. It does look like our timing is very good here. There was a strong breakout and since then it has pulled back to the breakout point. It also remains above support which was previous resistance to this move. You can set a reasonable stop and really, you could set it tighter than what I have here. The PMO is rising nicely and is not overbought. The RSI is positive and not overbought. We do have a negative OBV divergence in play, but I'll forgive that if support holds at the 20-EMA.
The weekly PMO is rising nicely after bottoming above the signal line. We can see how significant this current breakout is. It pulls WEAT out of a two year basing pattern. I believe using the 2017 top as an upside target is realistic, but it may hang up on intermediary resistance at the 2018 tops before getting that high.
Full Disclosure: I'm about 50% invested and 50% is in 'cash', meaning in money markets and readily available to trade with. I will likely add a few stocks to my portfolio soon. I'll let you know which Diamonds I go with when I've made purchases.
Current Market Outlook:
Market Environment: It is important to consider the odds for success by assessing the market tides. The following chart uses different methodologies for objectively showing the depth and trend of participation for intermediate- and long-term time frames.
- The Silver Cross Index (SCI) shows the percentage of SPX stocks on IT Trend Model BUY signals (20-EMA > 50-EMA)
- The Golden Cross Index (GCI) shows the percentage of SPX stocks on LT Trend Model BUY signals (50-EMA > 200-EMA)
- The Bullish Percent Index (BPI) shows the percentage of SPX stocks on Point & Figure BUY signals.
Don't forget that as a "Diamonds" member, you have access to our GCI/SCI curated ChartList on DecisionPoint.com. You'll find it under "Members Only" links on the left side on the Blogs and Links Page.
Here is the current chart:
Diamond Index:
- Diamond Scan Results: 20
- Diamond Dog Scan Results: 4
- Diamond Bull/Bear Ratio: 5.00
I'm in the process of trying to plot the Diamond Index, but with time at a premium, it is on the back burner.
Technical Analysis is a windsock, not a crystal ball.
Happy Charting!
- Erin
erin@decisionpoint.com
Watch the latest episode of DecisionPoint with Carl & Erin Swenlin on Mondays 7:00p EST or on the DecisionPoint playlist on the StockCharts TV YouTube channel here!
NOTE: The stocks reported herein are from mechanical trading model scans that are based upon moving average relationships, momentum and volume. DecisionPoint analysis is then applied to get five selections from the scans. The selections given should prompt readers to do a chart review using their own analysis process. This letter is not a call for a specific action to buy, sell or short any of the stocks provided. There are NO sure things or guaranteed returns on the daily selection of "diamonds in the rough."
Helpful DecisionPoint Links:
DecisionPoint Shared ChartList and DecisionPoint Chart Gallery
Price Momentum Oscillator (PMO)
Swenlin Trading Oscillators (STO-B and STO-V)
For more links, go to DecisionPoint.com!