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Martha Stewart Living Revisited

10/25/06 08:16:27 AM
by Koos van der Merwe

Had you bought Martha the last time I wrote about Martha Stewart Omnimedia, you would have laughed all the way to the bank.

Security:   MSO
Position:   Buy

In my article "Martha Stewart, The Comeback Kid," I concluded that simply on her personality and following alone — as long as the general market trend is positive — that the share was worth a buy.

FIGURE 1: MARTHA STEWART OMNIMEDIA, WEEKLY. A tumultuous year for the stock reflecting the company's founder makes this stock worth watching.
Graphic provided by: AdvancedGET.
Figure 1is a weekly chart and shows how the price nearly doubled from that date to reach a high of $34.86 by September 2. From that date it dropped dramatically to a low of $16.33 by November 2005 as revival attempts, especially her TV show based on Donald Trump's "The Apprentice," failed.

Since then, the stock has been languishing at these levels, reaching a low of $14.76 by July 25, 2006. Martha appears to have lost her shine.

FIGURE 2: MARTHA STEWART OMNIMEDIA, DAILY. The stock appears to have formed an inverse head & shoulders pattern, breaking the neckline on October 18.
Graphic provided by: AdvancedGET.
However, a look at a daily chart (Figure 2) suggests otherwise.

While I was removing the share from my watchlist, the stock price formed an inverse head & shoulder pattern, breaking the neckline on October 18 at $20. This suggests a target of $22.60.

The price reached a high of $21.02 before correcting, giving us an opportunity to buy the share. At the time of this writing, the share price is $21.25, up 0.66 cents on its opening price.

Is Martha Stewart Omnimedia (MSO) a buy? I believe it is, but once again I caution regarding market direction.

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.

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Date: 10/25/06Rank: 2Comment: 

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