May 7th, 2008

KO and CLWR: Time to Sell and Time to Buy

I just received a comment and, with the readers permission, want to respond publicly because of the excellent “charting reading” experience (which is one of the things this blog is supposed to be about) the exercise offered. The question was whether I had “any thoughts about KO (Coca Cola).” I’d like to answer by comparing KO’s chart with that of CLWR (Clearwire Corp).

Let’s play a game of “Best Chart“: Pick which of these two charts do you think, over the next 3 months, will show the better performance:

  • Coca-Cola (KO)

  • or Clearwater Corp (CLWR)

Don’t these look like mirror images with one turned upside down? I couldn’t come up with a better comparison to strike home the need to own the right stocks at the right time (or no stocks, as is the case now based on my MTI, Market Timing Indicator, but more on that later) and dispeling the “buy-and-hold” myth.

KO looks like a double-top formation on the verge of a breakdown through the supporting trendline while CLWR looks like a double-bottom with a break up through the resistance trendline. KO has crossed down over its moving averages (soon crossing down over even the slowest 300-day moving average) while CLWR has just crossed over above the 180-day moving average (it hasn’t been trading long enough for a 300-day moving average).

The KO volume pattern seems to conform to a deteriorating stock while CLWR’s pattern is neutral edging towards positive.

How did I happen to pick these two stocks to compare? KO was presented because of the reader’s question but also because my wife has owned it for some time and is lamenting its poor recent performance (down 12% since early January). CLWR was selected because I hear it mentioned favorably tonight on CNBC’s Fast Money show.

Both stocks are case studies in stock selection and timing: time to sell KO and time to buy CLWR. Let’s get back together on September 1 and see which actually performed better during that time. Maybe we should put some money on this. I don’t know about you but I’m excited!

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