Martha Stewart, The Comeback Kid

04/20/05 07:41:22 AM

by Koos van der Merwe

Martha is definitely the comeback kid... and I can guarantee you that her ankle bracelet will soon be fashionable. What does the latest chart say?

Security: MSO
Position: Buy

In an earlier article ("MSO At A Low?" March 24, Traders.com Advantage), I suggested that the stock price had been oversold and was due for a correction. Since then, the stock price has fallen even further, by a couple of dollars, but Figure 1 suggests that Martha is on the comeback trail, especially with a radio show aimed specifically at women--Howard Stern, beware.

Let us look at what the chart says.

Figure 1 is a candlestick chart with the indicator -- a stochastic + relative strength index (RSI), but with a difference. The trigger for the indicator is the previous day's indicator (red line). Here is the formula for the indicator in MetaStock:

StRs:=((Sum(RSI(10)-LLV(RSI(10),10),3)/Sum(HHV(RSI(10),10)-LLV(RSI(10),10),3))*100);
80;
50;
20;

StRs;
Ref(StRs,-1)

I have also drawn the dominant support line, and Fibonacci levels from the low to the high.

Note the following:
a. The price has fallen to test--penetrate and retrace the long-term support line.
b. The price fell to and tested the 61.8% Fibonacci level. Retracement targets are the 50% level at $22.51 and the 38.2% at $27.97.
c. I have shown buy and sell indicators suggested by the stochastic-RSI. Note two things:

1. Short-term traders would have traded as the red line crossed the green line.
2. Longer-term traders could have waited for the indicator to cross the 50-level mark before following the suggested signal.

Figure 1: Martha Stewart Omnimedia and indicators

Graphic provided by: MetaStock.

The risk is the overall market and the state of the US economy. Should the Dow Jones Industrial Average continue falling and move into a major bear market, no matter how good the company, the trend will be down as investors run to safe haven.

Is Martha Stewart Living Omnimedia (MSO) a buy at this price? I believe so, simply on her personality and following alone -- as long as the general market trend is positive. The chart is there simply to tell you when to buy.

Koos van der Merwe

Has been a technical analyst since 1969, and has worked as a futures and options trader with First Financial Futures in Johannesburg, South Africa.