Candlestick Forum

Long Term Stock Picks Newsletter

October, 2015

Current Market Outlook:

When the stock market suffers a mini-crash like it did in August, it usually

bounces a bit, and then retests those recent lows. We think that’s exactly

what’s happening now as I’m typing these words.

Obviously, there’s a lot of technical damage to all index charts, and may

take some time to clean up.

The August, September and October months are almost always rocky for

the markets, and we are witnessing that historic fact in spades this year.

The good news? We are fast approaching what has historically been the

best time to be in the market – the November through May time frame.

Also, the year before a new president is elected tends to be bullish for the

market as the party in power does everything it can to boost the

economy… so their party can stay in power.

There are other reasons to be bullish as well. We’ll go over a few of those

below,

Finally, like last month, there are a handful of stocks that didn’t even blink

in the recent market swoon. These are sometimes the strongest stocks in

the market when the bull comes roaring back. I’ll identify a few of those

stocks below.

Bear markets and market crashes simply provide us with superb new

buying opportunities. I think we are approaching such a situation right now.

More details follow…

Current Market Commentary:

A spectacular event happened last Sunday night.

It was a once-in-a-generation “blood moon” and total lunar eclipse. Experts

say we won’t see another one until 2033.

We actually missed it in Houston – the skies were way too overcast to see

a thing.

But an expert photographer friend of ours headed north until he could get a

clear shot (see above). Beautiful, isn’t it?

Ancient people used to believe a blood moon was an omen that dire things

were about to happen. It sure worked this time…

The very next day, the markets cratered. The Dow was down over 312

points and the Nasdaq swooned 142 and change.

Is there more “blood moon market damage” to come? Perhaps, but there

are actually a few things to be bullish about.

On the surface, there are a LOT of things to worry about…

The past three months have been brutal for the stock market. The three

major indices we cover are down 9% in the third quarter, and are all in the

red for the year.

And if you call a “correction” a market down more than 10% from its last

peak, then we are officially in one. In fact, this quarter will pan out to be the

worst one in four years, when we had the last correction.

The list of negative factors seem to go on and on…

Volatility is back with a vengeance…

The Chinese market slowdown is still causing lots of investor angst…

The historic plunge in oil and other commodities cast doubts on

global economic strength…

Upcoming earning reports could turn out to be terrible…

The recent red-hot biotech stocks have plunged as a certain politician

promised to curb the high prices of drugs if she is elected…

Even the Volkswagen emission scandal is worrying investors.

So against this dire backdrop, what could there possibly be something to

cheer about?

Well, there are a few things, actually…

I’ve already mentioned one above… we are in the final negative month for

the market (historically), with potentially very bullish months to follow.

According to Ted Parrish, founder and chief investment officer of Parrish

Capital, “I’m not spooked by this. We are not going to be down in the

doldrums forever. The short-term money is leaving. That’s always good.”

Parrish is buying up stocks that he thinks have been unfairly punished in

the market downdraft.

Another investment expert is also bullish. Phil Orlando, chief equity market

strategist for Federated Investors, thinks the S&P 500 could surge as much

as 15% in the next three months to finish the year above 2,100.

And again, history is on our side…

According to a report on CNN Money’s website:

“October, November and December are typically among the strongest

months of the year for stocks -- which is why some traders refer to the

fourth quarter bump as a Santa Claus rally.

The S&P 500 gained more than 4% from October through December of last

year and was up 10% in the fourth quarter of 2013.

And stocks surged in the fourth quarter of 2011 -- even though things

looked particularly bleak due to the European debt crisis and the credit

rating downgrade of the United States by Standard & Poor's.

The S&P 500 plummeted 14% in the third quarter of 2011 -- but surged

11% in the fourth quarter to finish 2011 flat.”

So let’s get ready for that wonderful Santa Claus rally!

But first, let’s see what the general market charts are telling us…

Major Index Chart Analysis:

Dow Jones Industrial Average

Except for a few days in September, the Dow has been “living under its

major moving averages” since late July... not a healthy situation at all. I

would refrain from strong new buying until that unhealthy scenario is

rectified.

We want to see the index hold above, and then bounce off those August

lows. That would indicate a possible “double bottom” for the index, allowing

it to take off to the upside once again. But if those August lows are

breached to the downside on big volume, it could be “look out below”… we

are then in a bear market for sure.

Stochastics are in the oversold area, but if we have entered a bear market,

they could remain there for quite some time.

So the most prudent thing to do is to see if we bounce off that double

bottom before doing any serious new buying.

S&P 500

The S&P 500 chart shows more or less the same characteristics as the

Dow’s. I do like that potential Morning Star signal formed over the past

three trading days, with stochastics in the oversold area. We could see a

bounce here, but again it would be “look out below” if the S&P fell through

that recent support area around 1,860.

NASDAQ

The NASDAQ’s chart shows “more of the same” as its big brothers.

Stochastics indicate a possible bounce here. .

OK, let’s now take a look at some stocks that have held up fairly well in the

recent market weakness. These could be the leaders when the market gets

back on solid footing.

Favorite Long-Term Stock Pick of the Month:

Dave & Buster’s Entertainment, Inc. (NASDAQ: PLAY)

About the Company:

Dave & Buster's Entertainment, Inc. (PLAY) - Operates 70 restaurants in

27 states and Canada, with plans to open seven to eight more units in

fiscal 2015.

According to Yahoo Finance:

Dave & Buster’s Entertainment, Inc. owns and operates venues that combine dining and entertainment for adults and families in North America.

Its venues offer a menu of “Fun American New Gourmet” entrées and appetizers, as well as a selection of non-alcoholic and alcoholic beverages, and an assortment of entertainment attractions centered on playing games and watching live sports, and other televised events.

The company operates its venues under the Dave & Buster’s and Dave & Buster’s Grand Sports Café names. As of June 8, 2015, it owned and operated 76 venues in 30 states and Canada.

Dave & Buster's Entertainment, Inc. was founded in 1982 and is headquartered in Dallas, Texas.

Why We Like It:

As you can tell by its chart, PLAY has weathered the recent market

weakness quite well. The stock is only off around 10% from its all time high!

Not too shabby in this market.

PLAY’s annual EPS growth is a strong 129%, and with a P/E ratio of a non-

exorbitant 35, the company also has a nice GARP (Growth at a

Reasonable Price) number too.

Last quarter EPS came in at a solid 135% and prior quarter earnings at

28%. Last quarter sales came in at plus 20%.

Chart Analysis:

PLAY – Six Months Daily

PLAY debuted around a year ago in the $15 area. So you can see it’s been

a solid “player.” The stock has sold off a little bit in the overall market

weakness, but it’s up today in a down market, a good sign.

Stochastics are strong – starting to cross over and angle back up from the

very oversold area.

I think you can at least nibble some PLAY right here, with a stop in the

recent support area around $36.

Stocks on the Watch List:

There are another handful of attractive stock charts I’ve spotted lately that

almost completely ignored the recent market weakness. Let’s take a look at

three strong stock charts now…

Infosys Ltd. ADS (NYSE: INFY)

Infosys Ltd Ads (INFY) - Indian provider of software re-engineering,

systems integration, infrastructure management and other it services.

As you can see on the chart, INFY just blasted out of a massive cup-and-

handle base area. I’m basing this recommendation mainly on the chart

action itself, since INFY’s recent sales and earnings, while positive, have

been lackluster.

INFY’s ROE is impressive though, at 23.84%. (An ROE of over 17 or 18 is

considered to be an outstanding stock).

You may want to wait a bit to buy this stock, since the stochastics are in the

overbought area and angling down. So you might be able to buy it a few

dollars cheaper. The sell stop looks to be in the recent support area of

$17.50.

Euronet Worldwide Inc. (NASDAQ: EEFT)

Euronet Worldwide Inc. (EEFT) - Provides ATM, point-of-sale and card

outsourcing services as well as EFT software and prepaid services to

retailers.

Like INFY, EEFT’s chart is showing a gap-up breakout from a multi-month basing area.

In addition to a nice chart, the company’s fundamentals are solid. With a 3-year EPS growth rate of 25%, current year earnings estimates at 22%, last quarter earnings coming in at +34%, a 3-year sales growth rate of 13% along with last quarter sales coming in at a light but steady +7%, this one looks like a “Steady Eddie” long-term winner.

With the stochastics skyrocketing up from the midrange area with plenty of room to run, this stock looks like a good buy right here, stop around $68.

Digi International Inc. (NASDAQ: DGII)

Digi International Inc. (DGII) - Manufactures connectivity/networking

devices for telecommunication companies, internet service providers and

vendors.

After going virtually nowhere since January, DGII’s chart shows a recent

high-volume breakout from that massive basing area. And it’s not giving

much back in the current market weakness.

The reason for the sudden move north? DGII’s current year earnings estimates are up a whopping 2,000%! Its prior sales and earnings reports are lackluster at best. But with that massive earnings surprise, this one could have a ways to go on the upside.

The stock is extended short term, so it might behoove you to wait for either a pullback or the moving average lines to catch up to the price.

DGII looks like yet another potential Big Mover – perhaps not one of those elusive “10-baggers”, but definitely one to watch.