The Chart du Jour
The overall market is turning higher. Will it do so in a straight line, in a wush up? It could, but we doubt it. The underlying fundamentals and valuation levels in many stocks are simply too poor. It's only the short term downside momentum of the market that is washed out. "Back and fill, grind and push" is thus more likely to be the order of the day within a path of least resistance that technically is up.
In addition, as with our negative call on Starbuck's a few weeks ago, we continue to find stocks that look ripe for sale. The one above is the restaurant chain Applebee's. Somehow at the moment, Wall Street has gotten as far as beating up on fast food stocks such as McDonald's (MCD) and Tricon Global Restaurants (YUM), but investors are still chasing mid-level restaurant chains like Ruby Tuesday's (RI) and Applebee's (APPB).
To date, of course, the shopping malls (where these latter restaurants are widely located) remain full. But when the recent nationwide round of job-cutting starts to hit home, America's malls certainly aren't likely to stay that way.
At 16 times earnings, with earnings having recently grown at approximately 15% per annum, maybe Applebee's is a great growth stock -- but we doubt it. Not only does its Fibonacci rhythm on the monthly chart look reasonably complete, but at the end of the day, a grilled-cheese at home is a lot less expensive than that burger at the mall. Eating out is one of the easiest costs for people to cut back on when times turn tough -- as times most certainly are beginning to become in the real world. Ruby Tuesday's, at an even loftier P/E of 28-1 also technically looks like a sale to us.
Our suggestion: If you need to have shorts in your portfolio, rotate out of tech shorts into APPB and RI. To our eye at least, these stocks look set to follow SBUX recent 25% tumble.
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