"Reward
finds those who seek it."
-- Christina Nikolov
Signaling a Rebound
by
Christina Nikolov, Founder ChartWatchCentral
Stock/Ticker: SPX Corporation (SPW)
Date: January 31, 2003
Opinion: Bullish
Current Price: $37.10
Target Price: $41.00, then possibly $45.00
Commentary:
SPX Corp. (SPW) plunged 33% in just over three months and 51% since peaking on March 19, 2002. While there is no guarantee the shares will bottom in this vicinity, we think historical precedent is signaling a rebound.Over the past eight weeks, SPW traced out a double bottom near $36. (chart #1) This level is very significant because five major reversals took place within one point either side of $36 since mid-1997. (chart #2)
If SPW rebounds, $39-$41 could be a difficult zone to surmount. A four month downtrend resides at $39, while the late-October low and mid-January high are both perched near $41. Keep an eye on overhead resistance at $41, because if it's penetrated, the shares could quickly approach $46. (chart #1)
A word of caution: Keep a close eye on $35, because if that level is undercut decisively, the result could be a downdraft to upside gaps created between September 1998 and April 1999. Those gaps occurred on the daily chart at $30.68, $27.00 and $20.25.
Based on our analysis, investors aren't very bullish towards SPW. After all, the shares tout a price/earnings multiple of 8.5 based on 2002 earnings of $4.39. (2002 earnings are due to be reported on 2/13/03). Meanwhile, the 2003 and 2004 multiples are 8.6 and 7.6 respectively. That's far below the S&P 500's figures of 24, 19 and 17 based on 2002, 2003 and 2004 earnings.
To profit from a potential surge, we suggest the September 30 call (Symbol: SPWIF), which is currently offered at $10.00. If you are willing to take on more risk , the February 35 call (Symbol: SPWBG) and March 35 call (Symbol: SPWCG) will give you more bang for your buck if the shares appreciate short-term. These options are offered at $2.85 and $3.90 respectively. Be very careful if you trade the February or March options, since they could end up being losers if the rebound takes longer than expected or fails to materialize.
Chart(s):
#1) SPX Corporation (SPW) - Four Month Daily Chart
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Click the Chart for an Enlarged View
#2) SPX Corporation (SPW) - Eight Year Monthly Chart
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Click the Chart for an Enlarged View
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