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RSI


Is Lexmark A Buy?

10/14/10 09:34:23 AM
by Koos van der Merwe

With today's bull market, we are always looking for stocks to buy for both the long term and the short term. Lexmark has been tipped by a number of newsletters and even advisors. Is it truly a buy?

Security:   LXK
Position:   Buy

Is Lexmark (LXK) a buy? Figure 1, a monthly chart, shows how the price fell from a high of $136.01 in March 2000, at the height of the bubble, to a low of $29.26 by October of that same year. The share price then recovered to $98.10 by June 2004, a period of four years, and then fell over the next five years to a low of $13.37 by June 2009. Elliott wave analysis suggests that Wave C is complete, and that the price could be tracing Wave 1 of a new bull market. The break of the trendline, which should have been a resistance level, suggests that a new bullish trend is on the cards. This bullish trend is reinforced by the relative strength index (RSI) line, which gave a buy signal when the price was $13.37 in June 2009. The RSI is currently at overbought levels, suggesting that a sell signal is in the offing. This weakness is also confirmed by the volume, which has been dropping as the price rose.

FIGURE 1: LEXMARK, MONTHLY
Graphic provided by: AdvancedGET.
 
Figure 2 is a weekly chart and shows the rising price on a volume that is below average with a falling RSI. This divergence is a very strong sell signal, confirmed by the falling volume.

FIGURE 2: LEXMARK, WEEKLY
Graphic provided by: AdvancedGET.
 
Figure 3 is a chart more for traders than investors. It is an OmniTrader chart with the red/green strategy I use on an OmniTrader chart. (Formulas are available on request.) The strategy suggests a short-term buy signal, as shown on the vote line, as well as a buy signal on the indicator, the RSI volume histogram, and the stochastic RSI cycle indicator. The strategy works extremely well when used with the Vervoort trailing stop shown.

Long-term investors should be cautious when investing in Lexmark International. Long-term charts are suggesting weakness. Traders, on the other hand, could take advantage of the flag formation that is forming, suggesting a target of $54.52 (45.90 - 34.35 = 11.55 + 42.97 = 54.52).


FIGURE 3: LEXMARK, DAILY. Here's a short-term buy signal.
Graphic provided by: OmniTrader.
 



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.

Address: 3256 West 24th Ave
Vancouver, BC
Phone # for sales: 6042634214
E-mail address: petroosp@gmail.com

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Comments

Date: 10/20/10Rank: 5Comment: Hello from France, As a Traders.com subscriber and Omnitrader user, I am interested in your RED/Green Strategy. Thanks to you if you can email it to me, Best regards, Alphonse Martinod / France regnis@msn.com = invalid mail adress
Date: 10/20/10Rank: 5Comment: Hello from France, As a Traders.com subscriber and Omnitrader user, I am interested in your RED/Green Strategy. Thanks to you if you can email it to me, Best regards, Alphonse Martinod / France amartinod@free.fr regnis@msn.com = invalid mail adress
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