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HEAD & SHOULDERS


Looking For Yield

12/18/12 08:10:14 AM
by Koos van der Merwe

In uncertain times, it is best to look for stocks that give a good dividend or interest return.

Security:   CIM
Position:   Accumulate

The inverse head & shoulders pattern indicates a trend reversal from down to up. Volume should pick up as prices rally from the bottom of the head and then increase dramatically on a rally from the right shoulder. Should the neckline be broken on low volume, we must be suspect of the formation. The breakout could be false.

A high-volume breakout, on the other hand, would give us good reason to believe that the head & shoulders bottom formation is genuine.

FIGURE 1: CIM, DAILY
Graphic provided by: AdvancedGET.
 
When we look at Figure 1, a daily chart of Chimera Investment Corp., we have to wonder whether this is truly an inverse head & shoulders formation. The pattern, as shown on the chart, does look like it, but as the price rose from July 2012 to September 2012, volume appeared to fall, casting uncertainty on the rise.

Volume did rise from November 6 to November 12 but then fell as the price moved above the neckline, once again casting uncertainty. A further cause for uncertainty is the relative strength index (RSI), which is drifting lower from a sell signal given on September 14. The JM internal band did give a buy signal on November 29. (The JM internal band indicator is a 15-period simple moving average offset 2% positive and -2% negative.) A break below the lower band will suggest a sell.

FIGURE 2: NEWS REPORTS FOR CIM
Graphic provided by: Globe and Mail Newspaper.
 
When we look at the fundamental information taken from Globe Investor, as shown in Figure 2, we see that the company has been pretty consistent in paying its quarterly cash dividend on $0.09 per share payable on January 25, 2013, to shareholders of record December 31, 2012. The ex-dividend date is December 27, 2012.

This dividend, with previous dividends, equates a yield of 12.95% per annum, encouraging those investors who are chasing dividends to buy the stock now, and sell as it approaches the December 27th ex-dividend date deadline, if not earlier.

What did affect the price of the share, causing it to drop in July, was probably the announcement that it would restate GAAP financial statements for the period 2008 through to 2011, an announcement made on July 8, but this statement has already been discounted into the share price.

I would be a buyer of CIM at current levels, but with the intention of selling the share on a growth profit before December 27 if not earlier, depending on the RSI or a sell signal given by the JM internal band.




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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