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Time to Buy Mattel and Microsoft


Neatly packaged gifts for the holidays!

Mattel (MAT)

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  • Mattel has had a nice run off of the lows in March -- breaking a longer-term downtrend line in the process. Right now, it's sitting right on top of its uptrend line support which is about 4% off its high for the year.

  • As long as the trend line is still intact, you have to trade this from the long side. However, the fact that it's off of its highs while the indices are setting new 2009 highs is a negative divergence worth noting.

  • A look at the RSI reveals that support has held so far at the 43.11 level, but that another potentially negative situation is developing with a series of lower peaks.

  • While Mattel certainly doesn't have the strongest chart characteristics, it does present an interesting opportunity. Using the trend line as support, you have a low-risk entry to try to capture any remaining upside in the retail toy space. If the trend line is broken, you immediately close your long position and go short. The stock has downside potential to 16.62 to 17 (where the 200- and 400-day moving average lines come in).

Microsoft (MSFT)

Click to enlarge

  • A look at the chart of Microsoft provides a more bullish picture than Mattel.

  • The stock is sitting right at its 2009 highs and it's in a clear uptrend that started back in March.

  • It's trading well above its 60-day moving average (note the use of 60 in lieu of the traditional 50-day period) which has acted as good support during the move since March.

  • It has been consolidating up here on low volume -- after breaking out on very high volume in October -- and has managed to work off an overbought condition while giving up almost no ground.

  • This stock offers investors a way to get some exposure to holiday shopping (Xbox, PC, and laptop sales) while also plugging into one of ThirdWave's recommended sectors (business staples) based on the inter-market/market cycle work my firm does.

  • I'd suggest taking this approach to the electronic gaming space rather than any of the video gaming stocks -- Take-Two Interactive (TTWO), Activision (ATVI), or Electronic Arts (ERTS) -- except for the most aggressive traders/investors out there.

Strategy: Consider buying Mattel right here at its uptrend line support or Microsoft anywhere in its consolidation rectangle. The entry for Microsoft isn't ideal right here, but the stock is acting very well. It's a good candidate for year-end "window dressing", gives you holiday sales exposure and fits into my "business staple" play based on ThirdWave's inter-market and market cycle work.

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No positions in stocks mentioned.

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