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WILDER'S RSI


Limited Brands Beat Expectations

08/28/12 08:49:36 AM
by Koos van der Merwe

Limited Brands posted sweet second-quarter results that beat market expectations.

Security:   LTD
Position:   Buy

Limited Brands is the parent company of Victoria's Secret; Bath and Body Works; Pink; la Senza; and Henri Bendel, all very popular retail brands appealing to women. The share price will follow the market gyrations, but with a company where adjusted earnings for the second quarter ended July 28, 2012, of $0.50 compared to adjusted earnings of $0.48 for the same quarter a year ago, the share is something definitely worth looking at.

FIGURE 1: LTD, MONTHLY
Graphic provided by: AdvancedGET.
 
Figure 1 is a monthly chart and shows how the price moved from a low of $7.94 in January 1996 to a high of $52.01 by May 2012. Do note how the share price fluctuated dramatically as the economy fluctuated with the price falling as low as $6.10 in March 2009.

Since then, the price has rebounded dramatically and on falling volume, a sign of weakness. Note too the relative strength index (RSI) was corrected with its divergence buy signal on March 2009. At the moment, the RSI is overbought and by breaking below its 70 line, is suggesting a long-term sell. What does a weekly chart say?

FIGURE 2: LTD, WEEKLY
Graphic provided by: AdvancedGET.
 
The weekly chart (Figure 2) is only looking at the rise in the share price from March 2009 to the present and shows how the price rose from $6.10 to its present price of $48.83. Although I have drawn a resistance line from the high of $52.01, suggesting the possible formation of a flag, the stochastic indicator is still showing strength, suggesting that the resistance could be penetrated. Volume rose as the share price rose and then fell as the share price fell on August 24, confirming strength ahead.

FIGURE 3: LTD, DAILY. Chart shows advisor rating on a buy signal.
Graphic provided by: OmniTrader.
 
My final chart (Figure 3) shows the reason as to why Limited Brands was brought to my attention. The vote line gave me a buy signal based on the red-green strategy long, the red-green strategy long stop, and the RSI 12-period strategy. Note also that the advisor gave a 56-point buy rating, a rating that is above my minimum acceptable rating of 52. A look at the previous buy ratings on the vote line will confirm the accuracy of this signal.

I would be a buyer of Limited Brands at the present price, but would keep a tight stop-loss.




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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