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When the markets were under pressure talk of recession was everywhere. However, my technical analysis indicates that the decline witnessed by the markets since hitting all-time highs in October 2007 was only a correction in a bull market. Although a slowdown is evident, I'm still not convinced that the economy is in recession. Additionally, it appears that a bottom is in and the market has been consolidating sideways over the past four months. However, if you think a recession is ahead then stocks which are difficult for consumers to go without should be recession proof. Those stocks would include energy, food and discount retailers.
Shopping at Costco Wholesale's for a wide variety of brand name items at discounted prices and daily domestic fare is quite trendy, whatever your net worth. While the recent slowdown has taken a bite out of discretionary spending for most retailers, discount retailers have seen increased sales. Costco reported a 7 per cent increase in March same store sales. The steady traffic stream has translated into share prices that have almost tripled over the past five years, soaring to a high of $72.68 (U.S.) in December 2007. There's still room for growth.
Having completed a fourth wave correction in March, a fifth advancing wave, in a larger third wave advance, is currently under construction. A daily chart (not shown) indicates the stock is overbought at current prices though and should pull back to the lower Bollinger band trendline at about $64.50 over the next month where it would offer investors an opportunity. The weekly chart indicates the MACD has issued a buy signal from a very oversold level which supports the underlying bull trend. As the fifth wave rally is just beginning weakness should be bought as the stock appears poised to rise to about $83.30 over the next year.
In the energy sector, Texas based Williams Companies Inc., a manager of energy products, including natural gas, liquid hydrocarbons, petroleum and electricity looks quite interesting. In February company officials guided earnings expectations for fiscal years 2008 and 2009 higher. Reports show that "for fiscal year 2008, Williams increased its outlook for consolidated segment profit to a range of $2.4-$2.9 billion from the prior range of $2.25-$2.755 billion. The company also increased its outlook for earnings a share to a range of $1.60-$2.00 a share from the previous range of $1.50-$1.90 a share." Analysts expect earnings of $1.83 a share for 2008. The company will report first-quarter earnings on May 1
"For fiscal year 2009, the company expects consolidated segment profit in a range of $2.5-$3.1 billion and earnings a share in a range of $1.70-$2.20."
Technically, over the past nine months the share price has traced out a triple bottom on a closing basis, or more recently over the past four months a double bottom pattern and has broken out to the upside over its resistance line at about $36.35. The MACD has also diverged positively and has issued a buy signal from an oversold level. Additionally, the stock has closed at a multi-year, week high which suggests higher highs ahead. The weekly moving averages are all positive and the 20-week MA at $34.38 should offer support on any weakness. A monthly close above $36.94 would confirm the breakout and the rule is to buy breakouts. The pattern's technical measurement suggests a potential target of $43.55 over the next three 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.