AddThis
Print
Email
- The Health Care Reform Winner
- The Most Valuable Business in the United States
- This Commodity is Poised to Outshine Gold
- A Little-Known Tool for Uncovering International Income Ideas
- 1.3 Billion People Need Soap
- Three Things the Market is Missing About Buffett's Buying
- This ETF Has TRIPLED the S&P 500
This week, I wanted to take a moment and update readers on what could be ahead for the markets in the short term.
Take a look at my proprietary Turner CrossOver Oscillator, below. As you can see from the far right of the chart, the black line (Composite Index) continues to move lower, while the red line (Short Sell Index) continues to move higher. This is in spite of the fact that the market (green shaded area) continues to move higher.
This means the market is becoming overbought and could correct.
In addition, my investor sentiment data (not shown) indicates a very weak 5-to-1 Bear-to-Bull ratio. My Cycle Data Forecast Model (which I am reserving for my Mastering the Markets subscribers) also says a pullback could be on the horizon.
But part of my rules-based system is focusing on what actually is happening -- not just what could happen. With the negative bias of my forecasting models, more cautious investors may find it prudent to take money off the table and build up cash. As for me, I'll continue looking at long trades for Trade of the Week unless a correction is actually underway.
This week, I'm looking at a technology stock that has demand fundamentals my systems have rated as a "Strong Buy." I like this stock, not only because of its strong rating and fundamentals, but also because it provides exposure to the tech sector, when many of my recent trades have come from the oil and gas industry.
Cognizant Technology Solutions (Nasdaq: CTSH) has one tiny flaw... it has been moving higher for 10 months, already climbing into Zone 4 from Zone 1:
Despite the strong move higher, I think the shares still have potential. With regard to the fundamentals, I like the following:
- Earnings growth on a quarter-over-quarter basis was +23.7% during a difficult stretch in the overall economy. As well, year-over-year earnings growth came in at +36.0%. Revenue growth was +13.3% quarter-over-quarter.
- The 5-year average earnings growth rate tells me this company has long-term staying power. In this case, CTSH has an average annual earnings growth rate of +33.7% over the last five years.
- Return on equity is a solid 26.2%.
- Despite a P/E of 25.1, CTSH is still attractive relative to its peer group.
- CTSH is in Zone 4 of its 3-year price chart and looking to move higher. This is one of those stocks that I like to call a winner, and I find that winners have a tendency to continue rising.
- Average daily volume is more than 3.5 million shares, providing plenty of liquidity.
- I want to own stocks where a "rising tide" is lifting all boats. In this case, both the industry (software and programming) and sector (technology) are in bull markets, which is very positive for shares of Cognizant.
Action to Take: Based on the analysis above, I believe CTSH is a good trade to put on Tuesday with the following trading parameters:
- Buy CTSH with a limit order at $41.00 (Good for the Week)
- Set an initial stop loss at $33.60
- Target price = $50.00
- Potential Profit = +22.0%
Mike Turner
Editor
Mastering the Markets
Trade of the Week
