My latest column over at Marketwatch’s Trading Deck.
Microsoft’s Measured Move and the March to $45
But the runaway strength in Apple shouldn’t blind traders and investors to opportunities in other successful tech stories, like Google and like Microsoft, which may be on the verge of another bout of outperformance and a significant move toward new highs.
Are Costco Wholesale (NASDAQ: COST) and Amazon.com (NASDAQ: AMZN) to blame for the woes of office supply retailers like Staples (NYSE: SPLS), which plunged by more than 14% after reporting earnings that were worse than expected, and lowering guidance going forward?
Staples blamed weak North American sales for the company’s disappointing performance last quarter, invoking the term “sales trends” to suggest that the tough times Staples was experiencing may be inclined to last.
Maybe the only thing worse would have been “secular sales trends”, though that very well may have been what Staples CEO and chairman Ron Sargent meant. While the recent economic downturn has no doubt done to office supply retailers like Staples, OfficeMax (NYSE: OMX), and Office Depot (NYSE: ODP), the same kind of damage done to low-to-medium end men’s professional ware retailers such as Men’s Wearhouse (NYSE: MW) and Jos. A Bank Clothiers (NASDAQ: JOSB), there is also an argument that there are larger tectonic movements that have been rearranging the retail sector in ways that have, and will likely continue, to work against the Staples, Office Depots, and OfficeMaxs of the world.
Jim Cramer on CNBC‘s “Squawk on the Street” program Wednesday morning invoked the dreaded “Radio Shack” to refer to the way office supply retailers may be on their way to obsolescence. That may seem extreme, but when considering the fact that these retailers do not just have to compete with bigger, generalist rivals with more pricing power like Walmart (NYSE: WMT) and Target (NYSE: TGT), but also with online retailers like Amazon.com – more than happy to deliver – and Costo Wholesale – more than happy to sell in bulk, it doesn’t take much to wonder if the world is big enough for three different office supply retail chains.
Technically speaking, there is little to recommend the office supply retailers at this point. All three are trading in bear market territory. Staples and Office Depot are at particularly extreme levels, falling to new, long-term lows as of Wednesday’s open. Also trading nearer to long-term lows than long-term highs, shares of OfficeMax have rolling through a $2-wide consolidation range since last fall, and pulled back sharply Wednesday morning – arguably in sympathy with Staples. This latest move takes OMX lower lower for the fourth day out of the last five.
Do the woes of office supply retailers provide any near-term opportunity in some of the stocks mentioned above – like Walmart, Target, Costco and Amazon.com? Walmart is scheduled to report quarterly earnings before the market opens Thursday morning, and is inching higher for a second day in a row after a three-day pullback to just inside short-term oversold territory. Target, which reported Wednesday morning, gapped higher after providing investors with of blow-out earnings (albeit with a revenue miss).
Rangebound for the first two weeks of August, shares of Amazon.com are trading near year-to-date highs and, as I’ve suggested, look to be poised for a run to $250. For its part, Costco could be due for some short-term profit-taking as the stock gains for a third day in a row after a five-day retreat returned the stock to new, two-week lows just above technically oversold territory.
I wonder if investors will stop selling Costco’s stock, if the warehouse retailer starts selling Joan Rivers’ new book.
There’s probably no relationship between the septuagenarian commediene’s decision to handcuff herself to a shopping cart at a Costco Wholesale (NASDAQ: COST) location as a publicity stunt, err, protest against the store’s refusal to sell her latest book, and the fact that investors have been quietly but steadily unloading shares of the stock for more than a month.
But that’s where Costco investors and bewildered Costco shoppers in Burbank, California found themselves this week. Just as Costco, in the words of the aggrieved Ms Rivers, “sells Paul Dean books which are not good for their customer’s health” but won’t sell her latest opus, I Hate Everything … Starting With Me, so are Costco investors heading for the exits in an orderly profit-taking that may not remain orderly for long.
Shares of Costco have had three multi-day sell-offs in the last month alone. These pullbacks haven’t taken the stock to significant new lows. But they have helped take the steam out of the stock’s most recent rally from early June, and may convince more active investors that the time has come to lock in gains. And should current selling beget additional selling, the result could be, at a minimum, a stretch of sideways trading in the shares over the next few weeks.
Even a more serious correction would not be the end of the world for the stock’s bull market. The fact of the matter is that Costco has been in a strong uptrend since the generational lows of 2009. Blighted by only two significant instances of sideways trading over the past three and a half years, shares of Costco have returned more than 125%, including the stock’s gain of well over 12% in the last two months.
That said, each time the stock has pulled away from this major trend by more than 30%, COST has tended to underperform over the next 4-6 weeks. This was the case in November 2009, leading to a 9-month bear market in the stock. It was also true in May 2011, when another run-up in Costco shares was followed by a 12% decline over the course of the following summer.
Why bring this up? Well, even with the stock’s Thursday retreat – marking Costco’s fourth lower close in a row – shares are once again trading more than 30% above trend. The stock was only recently trading at new, 52-week highs, but a period of underperformance over the balance of the summer and into the fall may be next.
Even basis the trend from more recent lows in 2010 or in 2011, the move in Costco looks overextended in the near-term. Again, this does not preclude higher prices in the stock months from now. But between now and then, the multi-day sell-offs over the past several weeks as the stock trades near long-term highs, suggest potentially the beginning of a broader and more thorough distribution as traders and investors take profits in what has been one of the better performing stocks over not just that past two months, but the past two years, as well.
Heading into trading on Friday, shares of COST are at new, two-week lows. Any significant selling at this point likely will take the stock into short-term oversold territory, also. And traders hoping for the same sort of short-term move higher that happened during COST’s last pullback in late July may see an opportunity if any end of week selling takes the stock low enough. Historical support does begin to develop for Costco shares near the $93.75-94.25 area. But if the stock is truly due for a distribution period, an initial move lower to $92 may be where buyers will look to make a stand.
The latest salvo in a season of Microsoft (NASDAQ: MSFT) bashing comes courtesy of the smoking guns of Acer CEO JT Wang who was quoted recently in the Financial Times suggesting that it woud be a shame if anything were to happen to Microsoft’s precious tablet plans:
“Think twice (Microsoft). It will create a huge negative impact for the ecosystem and other brands may take a negative reaction. It’s not something you are good at so please think twice.”
Or else?
Wang’s reaction to Microsoft’s plan to develop Surface is not unusual. The line of skeptics muttering and mumbling under their breath about Microsoft’s return to the hardware world might possibly stretch from one end of the software giant’s gilded green campus to the other. What is a little atypical was the bluntness (one headline referred to Wang’s “Mafia-style threat”) and openness coming from others inside the tech tent – and from a chief exectuive officer, no less.
The idea of Acer thumping Microsoft in the chest is a little comical to some. I can’t help but be reminded of the poster my Dad used to keep in the den (this was back in the days before man caves), a cartoon drawing of a mouse demonstrably flipping the bird in the shadow of a swiftly descending hawk. The caption read: The Last Great Act of Defiance.
My guess is that the relationship between Microsoft and the Acers of the world will resolve itself more amicably than the one between the foremetioned mouse and hawk (past abuse of hardware makers, notwithstanding). Despite the Acer’s threat to “abandon” the Windows platform altogether if Microsoft will not relent in its drive toward Surface, I doubt Acer has much in the way of a back up plan if it did carry out its threat to leave the world of Windows (I imagine Steve Ballmer huffing, “Let them eat Linux!”).
Actually, if Acer did go in any direction, Android and the building of Android tablets instead of Windows tablets a la Surface would probably be the the Taiwanese corporation’s only other real option – though as pointed out here, Google (NASDAQ: GOOG) already has a tablet maker in Asus.
This may be why Wang’s outburst – and that of other top Acer executives – may be more accurately understood in the context of the (positive) disruption that tablets and smartphones are bringing to the technology market – especially for hardware makers like Acer. Seen in this light, the anxieties of Acer are as much a representative of the growing pains of the industry rather than a cogent critique of Microsoft’s ability to do hardware (Xbox anyone?).
Looking at the stock, shares of Microsoft appear headed for a fourth higher close in a row. Should MSFT finish up today on Wednesday, the stock will have closed in short-term overbought territory for a third consecutive session. As I suggested a few days ago, the stock is moving through a pattern of lower highs and higher lows. And this kind of price compression historically has led to sizable moves once the pattern is broken by either a significant higher high or a significant lower low.
Note that a similar pattern of lower highs and higher lows in the late summer and fall of 2011 helped pave the way for a major breakout in MSFT just after the beginning of this year. If the current pattern plays out similarly to the previous one, then traders may want to be on the lookout for a break by the end of August.
This morning’s Seattle Times brings news that Amazon.com (NASDAQ: AMZN) is getting into the gaming space.
Amazon gave few details about the new division except that it’s focused on developing “innovative, fun and well-crafted games,” a sign that more titles are on the way. It also noted that the team is hiring.
That would seem to put the Internet retailer head to head with Zynga (NASDAQ: ZNGA), the undisputed leader of social games for Facebook, but the move prompted more questions than answers from some analysts Monday.
Amazon.com’s “Amazon Game Studios” is the unit that will be tasked with the creation of the new games, with a first effort, “Living Classics” already available on Facebook (NASDAQ: FB). And while analysts and critics now only have more grist for the complaint that Amazon.com is spreading too widely and moving away from its core competencies, others have suggested that adding games – particularly social games – to Amazon’s oeuvre goes a long way toward populating an ecosystem that already includes a tablet, a comprehensive consumer experience, and is rumored to be adding a smartphone. Quoted in the Times piece is a media consultant, for example, who refers to the potential synergies as a “nice bonus.”
I’ve had more than a few positive things to say about Amazon.com in recent weeks. The stock has begun to drift sideways in the first few days of August, following a strong rally near the end of last month – a move that took the stock to its highest level since the fall of 2011. Heading into Tuesday’s session, shares of AMZN have traded lower for five out of the previous six sessions. But the stock is neither oversold, nor trading near short-term lows.
For traders who prefer to buy stocks on pullback rather than breakout, the task of waiting for a quality sell-off in Amazon.com may be patience-trying. The last good opportunity for short-term traders looking to get into AMZN on the cheap was during the stock’s three-day retreat into oversold territory in the first half of July. Part of a correction that took the stock lower for five out of six trading days, the pullback resulted in a gain of more than 5% over the next five days.
Sideways trading in the stock may be the best thing for potential Amazon.com traders and investors right now, as the weakness is allowing the stock to work off overbought conditions that would otherwise tend to impede further progress to the upside. The most interesting level in the stock right now is the August 2nd lows, which actually represent a level of historical support. Should shares remain above this level, then the likelihood of Amazon.com continuing its pattern of higher highs and higher lows will remain strong.
Special bonus technical note: There’s a halfway decent argument that AMZN has traced out a cup with handle pattern, a pattern that began in May and developed shortly after the stock’s big gap higher at the end of April. Should this cup with handle pattern prove valid, then a move to $250 or beyond should be expected.
For men of a certain age, Nautilus (NYSE: NLS) and its signature line of exercise equipment are the sine qua non of DIY fitness. While many in the “I”ve gotta lose 10-20″ crowd have begun to turn toward more modern pro-fitness strategies – from P90X to Crossfit – the Nautilus name remains as synonymous with getting fit as Weight Watchers is synonymous with dieting.
Whether this legacy continues to pay off for the Vancouver, Washington-based firm will be the subject of the company’s upcoming earnings announcement, due Monday after the bell. Facing growing competition from a variety of lesser known, often lesser quality but often aggressively-marketed rivals, Nautilus has managed to beat analyst expectations in terms of earnings for more than a year. But revenues have disappointed for three consecutive quarters, putting added pressure on the company to show improved quarterly sales after the market closes on Monday.
Part of the Nautilus strategy against the ShakeWeights and Abdomenizers of the world has been a new product geared specifically toward women called CoreBody Reformer. Lighter, more portable and with a significantly smaller footprint compared to the characteristic Nautilus workstations and treadmills, CoreBody Reformer allows the trainer to incorporate “yoga, pilates, and dance movements” into what Nautilus calls a “core-energizing, lifestyle-changing workout.”
The question, of course, is whether CoreBody Reformer will catch on. Given the marketing strategy (see “yoga, pilates and dance” above), it will be worth seeing if Nautilus can convince a new generation of exercise-conscious women that a company known for helping men pack on the muscle is for real when it comes to its dedication to the softer side of fitness. In a world with a dizzying array of DIY fitness options – again, especially for women – this may be more of a challenge than company planners believe. Barriers to entry to the home gym end of the exercise equipment market seem to move lower every day, and the customer base for exercise equipment – especially the DIY variety – seems atypically vulnerable to the sort of fads and trends that might work against an industry stalwart like Nautilus.
Focusing on the CoreBody Reformer also means focusing on Nautilus’ strategy for populating more home gyms with its products, and a greater emphasis on retail sales compared to sales in the commercial fitness market. To the degree that more and more people decide to save money by avoiding the commercial fitness centers and turn instead to the Nautilus products designed specifically for the home gym – from Bowflex to the CoreBody Reformer – Nautilus’ strategy here could pay off. At a minimum, it shows that the company is sensitive to changes in contemporary exercise culture.
About the stock. A bull market from August 2011 through early July boosted shares of NLS by more than 150%. In the month since the stock reached new, 52-week highs, the stock pulled back to retrace about 25% of its August-July run as part of a five-day correction that took shares of NLS into short-term oversold territory. Buyers took advantage of the retreat, and have sent the stock higher, with NLS closing up for seven out of the last eight trading days.
Friday’s trading left the stock significantly off session highs, which may put traders in a “sell the news” mood ahead of the company’s earnings report after the bell today on Monday. If traders do decide to sell – either on continued disappointment with revenues, an earnings miss, or even just as a reaction to overbought conditions that are only a few up days away – then there are a few levels to watch for potential support. Here, the recent lows near $3.10 are the most immediate level to look at, though it would take a pullback to the $2.90 level before the stock would become officially oversold.
I’ve made no secret of how impressed I am by the work coming out of Google (NASDAQ: GOOG) around its Google Glass initiative. And the only thing that could make me more excited about Google’s project is news of progress on a “similar, but different” innovation from Redmond, Washington’s own, Microsoft (NASDAQ: MSFT): the inartfully named “Wearable Multitouch Projector.”
Microsoft’s project, which doesn’t have a snazzy name like Google’s, is a wearable projector that utilizes technology similar to the Kinect to shine a multitouch display pretty much anywhere. The company simply calls it the “Wearable Multitouch Projector.”
What that actually means is that a wall, a notepad or your hand can become a touchscreen in an instant.
Microsoft hasn’t figured out the use case for the technology, but one idea it’s playing with is that someday soon, you’ll be able to access everything in your smartphone while it’s still in your pocket.
This is the kind of thing I return to every time I hear about how much Microsoft has lost its groove. While it is true that there is tremendous competition among some of the most forward-thinking technology companies out there, it is also true that there are legions of current and up-n-coming engineers, programmers, and visionaries more than able to fill the ranks of tech firms for the foreseeable future. And those that do not find a home at Apple today are the ones who will find a home at Amazon.com (NASDAQ: AMZN), or Microsoft tomorrow.
After all, if the sister of Facebook (NASDAQ: FB) CEO Mark Zuckerberg can find herself working for Google (NASDAQ: GOOG) …
Shares of MSFT have been in correction mode since mid-March, shortly after reaching a high just north of $32 per share. Depending on where you begin, and it looks to me that the best place to begin is in mid-June 2011, Microsoft stock has taken back about 50% of the stock’s advance from a summer base last year to the recent spring top. The stock has bounced from that 50% pullback. But the relatively modest gains are starting to hint at the possibility of another sideways correction (not unlike the one a year ago that served as a sort of launching pad for Microsoft’s almost 40% advance from the summer of 2011 to the spring of 2012.)
That consolidation, if it is to develop, is still in its early stages. For now, traders and active investors in the stock may want to keep an eye on near-term support and resistance levels near $28.50 to the downside and near $30.75 to the upside. Pay special attention if we begin to see the same tightening, constricting pattern of higher lows and lower highs that was also a key characteristic of the June lows last year.
In the immediate term, MSFT is in neutral territory, having pulled back modestly for the past two sessions in a row. The stock is again trading near its 200-day moving average, but traders should be reminded that MSFT has done this before, most recently during its six-day retreat in the first half of July.
