Is Sony Corp. A Buy?

11/28/07 08:30:25 AM

by Koos van der Merwe

Sony gave a buy signal in a market where the Dow Jones Industrial Average fell more than 200 points.

Security: SNE
Position: Accumulate

On November 26, 2007, Sony chairman and CEO Howard Stringer received an endorsement of his team's turnaround strategy in the form of an investment from a firm owned by Dubai's Sheikh Mohammed bin Rashid Al Maktoum.

Was this the reason for Sony's rise and on a gap? Probably. Sameer Al Ansari, executive chairman and CEO of Dubai International Capital, called Sony "a compelling investment case, consistent with our mandate of supporting premier global companies."

Could we have foreseen this announcement by looking at a chart? Figure 1 shows the following:

FIGURE 1: SONY. Here, a gap is shown as the stock price broke above a neckline.

Graphic provided by: MetaStock.

1. From the high of $59.84 reached on May 22, 2007, the stock price fell in three waves to a low of $43.86 by August 16.
2. Note how well the FishMACD indicator tracked the movement of the stock price, calling buys and sells. The indicator gave a buy signal on November 21. The indicator is a Fisher transform calculation of an MACD of the highs.
3. The relative strength spread (white indicator) gave a buy on October 24, confirmed by the rapid RSI (yellow and green ). On November 7, the relative strength spread indicator gave a sell signal not confirmed by the rapid RSI indicator.
4. The final indicator is the stochastic RSI. This indicator gave a buy signal on November 12.
5. The volume gave no sign of the impending purchase, with only a small increase as the price jumped on a gap to close at $50.01.
6. Finally, a pattern that could be an inverse head & shoulders can be seen. The neckline was broken on a gap, suggesting a target of $55.68 (50.65 - 45.62 = 5.03 + 50.65 = 55.68).

Is it worth buying Sony in the present market, which is bordering on a bear? In times of negativity, we should invest in slow-growing safe stocks, with Coca-Cola and Altria as examples. Can we consider Sony a safe stock? With its product range and now the additional investment from Dubai, the answer is yes. Growth may be restrictive and slow, but it would be safe.

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.