Trend Following: True Or False + 3 PowerRatings Stocks

David Goodboy is Vice President of Business Development for a New York City based multi-strategy fund. The concept of trend following is often one of the first strategies new traders learn when discovering the financial markets. Several well written and convincing mass market books preach strongly about the superiority of the trend following method.

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On the surface it appears that nothing could be easier than catching a trend. The basic premise of trend following is that stock strength begets strength and stock weakness leads to more weakness. A series of higher highs and higher lows identifies an up trend. And a series of lower highs and lower lows is a sure sign of a downtrend.

The strategy, as defined in the books by the same name, teaches that once the investor identifies the trend, trades are placed in the direction of the trend. In other words, one would buy a stock that has exhibited an uptrend on the price chart. A stock downtrending would be shorted. [Read the full article]

Shares of Texas Instruments Inc. slipped Tuesday as investors gave the chip maker’s latest financial projections a cool reception.

After the close Monday, Dallas-based TI raised the low end of its first-quarter earnings and sales estimates. But shares fell 68 cents, or 2.8 percent, to $24.01 in morning trading.

In a client note, Jefferies & Co. analyst Adam Benjamin said it was likely investors had already anticipated that TI would hike its forecast, given recent comments from other companies in the semiconductor industry.
Caris & Co.’s Craig Ellis, who rates the stock “Average,” pointed out that TI’s profit margin remains flat at best, which he blamed on an unfavorable mix of high and low-margin product sales and rising labor costs, among other factors.

TI said it now expects a profit of 48 cents to 52 cents per share and revenue of $3.07 billion to $3.19 billion. [Read the full article]

Shares of Zoran Corp. fell Tuesday after a Collins Stewart analyst downgraded the company to “Hold” from “Buy” on concerns about an oversupply of the digital televisions that use its chips.

In a note to clients, Collins Stewart analyst John Vinh wrote his checks show weak digital TV sales at two of Zoran’s customers, Funai Electronic Co. and Toshiba Corp. Discount retailer Wal-Mart Stores Inc. overstocked for the holidays and has been left with excess inventory, he said.

Making matters worse, some of Toshiba’s shipments of 2010 TV models have been delayed due to limited supplies of flat-panel screens, Vinh said.

Zoran shares tumbled 76 cents, or 6.4 percent, to $11.15 in morning trading. The stock has ranged from $5.82 to $12.32 over the past year. [Read the full article]

Shares of Zumiez Inc., which sells skateboards, snowboards and related apparel, rose on Tuesday after an analyst said the retailer has good momentum.

Zumiez, based in Everett, Wash., reports fourth-quarter results on Thursday. Last week it reported sales in stores open at least one year rose 11.2 percent in February, a much bigger rise than analysts expected. The metric is seen as a key performance indicator because it measures growth from existing locations rather than newly opened ones.

On Tuesday, Jefferies & Co. analyst Randal J. Konik raised his fourth-quarter profit estimate by a penny to 29 cents per share. Analysts polled by Thomson Reuters, on average, predict profit of 27 cents per share.

“Zumiez has ample growth opportunity (and) a favorable niche with limited competition,” he wrote in a note to clients. [Read the full article]

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