Does Hasbro Have A Cycle To Trade?

10/13/06 12:06:36 PM

by Koos van der Merwe

This toy manufacturer's chart shows an interesting cycle.

Security: HAS
Position: Accumulate

The weekly chart of Hasbro shown in Figure 1 shows an interesting cycle that could be taken advantage of. The chart shows how almost every October, an upward correction is likely to occur even when the price is in a long-term downtrend, as happened from April 1999 to October 2000.

FIGURE 1: HASBRO, WEEKLY. Here's a chart of HAS showing cycles.

Graphic provided by: AdvancedGET.

The obvious reason? Holiday sales. The stock price rises as the market anticipates good sales into the Christmas season. I have highlighted December with a green zero. You will see that in many instances, the price retraced in December then continued to rise in January. This, I feel, is the result of reports by the market of the success or failure of Xmas retail sales.

FIGURE 2: HASBRO, DAILY. Here's a chart of HAS showing that a correction is due.

Graphic provided by: AdvancedGET.

Note how the lows were in many instances correlated with the stochastic indicator. Of course, as you can see, the exception is this year, 2006. Here the price started rising in July. Why? Who knows? Possibly the market anticipates exceptional Christmas sales, or that Hasbro has a product to challenge Tyco's Tickle Me Elmo 2. Whatever the reason, this cycle should be noted for October 2007, although with an expected correction as suggested by the stochastic, we could look at Hasbro later this year.

A daily chart has the relative strength index (RSI) suggesting a buy about May 25, rather early (Figure 2). It also shows a strong move upward on July 24, but I am unable to find a satisfactory fundamental reason for this move, unless the market is anticipating an outstanding Christmas with sales far above expectations. With the recent fall in the oil price, this does look feasible, although in July, it would have taken a brave investor to make that prediction.

I would be a buyer of Hasbro on any correction and hold the stock into December. In the future, however, I will be buying Hasbro in October.

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.