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Yola Edwards

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The McCain option

Yola Edwards

  

With the presidential election still months away and the Democratic nomination outcome uncertain, what might American investors expect under a John McCain Presidency, the only clear candidate to secure the Republican nomination?

Steve Forbes says "John McCain's pro-growth plan to cut taxes, stop wasteful spending and reform our health care system will secure our nation's prosperity for generations to come."

Larry Kudlow of CNBC's Kudlow & Company says "McCain is also good news for business and the stock market. He wants to cut the corporate tax and keep dividend and cap-gains tax rates low. He's tough as nails on restraining government spending and blowing up earmarks. On top of all this, he's a very strong free trader who knows America can compete with the rest of the world."

A military man and prisoner of war for five and a half years, John McCain is no stranger to loneliness. Former Bush chief of staff Andy Card stated that the most important character trait for a successful president is the courage to be lonely. As Larry Kudlow puts it, "In other words, the guts to make tough decisions."

Under a McCain presidency you would expect to see the defence sector benefit and Honeywell International and Johnson Controls spring to mind.

JCI-W JOHNSON CTLS INC

It appears that shares of Johnson Controls have completed a fourth wave correction as they found support at about $30 (U.S.) which was also the top of wave one. The relative strength index is oversold suggesting a buying opportunity and although the MACD hasn't issued a buy signal, it is oversold and trying to turn positive. Additionally, the bullish harami candlestick pattern forming the week of Feb. 11 indicates higher prices. A close above $36.05 would vault the stock out of a bullish pennant pattern and although resistance will be found at about $37.30, the stock should be able to power higher as the pattern's technical measurement suggests a target of about $58 over the next year.

HONEYWELL INTL INC

Honeywell is on its way out as one of the Dow Jones Industrial Average Index components but it should be in investors' buy books. On a fundamental basis the stock appears to be cheap as it is trading at 13.63 times forward earnings and it is also appealing technically. The stock has been consolidating for the past nine months and has put in a triple top and a triple bottom. The spring back from the gap down January lows was a resounding success indicating the lows are in. Additionally the MACD diverged positively at the January lows further supporting a bottom theory. The recent pull back has held above the rising gap at $56.55 and a daily hammer bottom on Feb. 11 appears to have arrested the most recent decline. A close above $62 would see the stock price rally sharply to about $74.35 over the ensuing two months.

Yola Edwards is a contributing writer and technical analyst for Bell Globemedia Interactive, providing options and technical analysis research on a variety of North American equities.

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