Friday, January 20, 2012

CBS: Watching the Eye

CBS Corp. (CBS) is television, one of what used to be called the Big Three television networks.

But it is also an information/entertainment conglomerate -- films, the premium cable channel Showtime, radio stations, outdoor advertising... Even books: CBS owns Simon & Schuster, one of the giants of the book publishing industry.

So when analysts start talking nice about CBS, it's good to listen. CBS was among the 21 companies raised to Zacks top rank today.

The CBS chart didn't make the cut when I did my screening, but for fairly disputable reasons. The price dropped sharply today, setting a higher high near the open but then dropping to a lower low at a micro level.

The volume on the weekly chart has declined steadily during the most recent rise, from $17.99 in early October 2011. Declining volume on a rising price is not a bullish sign.

And the chart looked as though CBS is setting a double top, or perhaps it could turn out to be a head-and-shoulders -- either way, a reversal pattern.

Otherwise, it's a great chart. The stock has risen from a recession low of $3.06 in early March 2009 to a peak of $29.68 on July 18, 2011.

That peak would be the first top, or the first shoulder, if the stock is indeed readying for a major reversal pattern. A break above that level could indicate formation of the head, or it could be a straight breakout -- a very big deal.

Today's high was $28.87, so that major breakout/resistance level isn't far away.

CBS has a respectable return on equity of 13%, and a slightly high debt/equity ratio of 0.61.

The price is reasonable for a growing stock -- a 32% premium over sales.

With 85% institutional ownership, it's clear that the big money has taken a fancy to CBS.

Average volume is 5 million shares, so its a very liquid play with a full suite of options and narrow spreads.

Decision for my account: I like the chart once the price breaks above the current high and stays there rather than falling back, as it did today. I like it even better once the price moves above the July peak of $29.68. 

I don't plan to open a position today. I'll keep an eye on CBS for a future play, and shall consider it for February covered calls, to replace my January covered call holdings, which expire on Saturday.

Tim Bovee, Private Trader tracks the analysis and trades of a private trader for his own accounts. Nothing in this blog constitutes a recommendation to buy or sell stocks, options or any other financial instrument. The only purpose of this blog is to provide education and entertainment.
No trader is ever 100 percent successful in his or her trades. Trading in the stock and option markets is risky and uncertain. Each trader must make trading decision decisions for his or her own account, and take responsibility for the consequences.

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