Tuesday, February 7, 2012

MCO: Analyzing the analysts

Moody's Corp. (MCO) is the good-guys debt rating firm. Unlike their counterparts at Standard and Poors last year, Moody's didn't downgrade U.S. sovereign debt as Republicans in Congress toyed with the idea of the government just not paying its bills.

Or maybe S&P was just more willing to face facts. Time will tell.

MCO's business is analysis -- how good is this company's debt? How about that government? Whose bonds are better? Greece's or Google's?

So it's a gobal business with consequences, which means the New York City company is often in the headlines, not always for the positive.

MCO had the most bullish chart of 16 selected at random from 675 large-cap stocks. My essay "10,000 Charts" describes my screening method.

MCO began its post-recession rise in earning in July 2010 at $19.46. From that point it has set a high of $41.93 in June 2011, retreated to a higher low of $26.79 in August 2011, and since then has risen back to $38.86.

The price is near a testing point. If it breaks above $41.93, then it remains quite clearly in an uptrend. If it reverses down from that point, then it is either moving into a downtrend or a triangle or sidewinder of some sort.

In any case, the $41.93 resistance point is 8% above current levels, so there is money to be made from the approach to that level.

One thing to like about MCO is the hourly chart, where volume has risen with the price for the past two days. The pattern has been broken with an intra-hour decline in the current hour, which began at 1 p.m. Eastern. Rising volume accompanying a rising price means there is buying momentum.

Although analysts in general are neutral on MCO, nearly all the stock is held by institutions, who have bid up the price to the point where it takes $3.77 in stock to control a dollar's worth of sales. The company has a fairly heavy load of long-term debt.

MCO is a liquid company, with average volume of 1.6 million shares and a wide selection of options with decent bid/ask spreads. However, open interest is on the slim side. Out of 44 possible March options, only four have open interest in the three figures.

Earnings will be reported before the open on Wednesday -- tomorrow. The stock goes ex-dividend on Feb. 15 for a quarterly payout yielding 1.65% a year.

Decision for my account: MCO is not a buy for me today under any circumstances, not with the announcement so close. The last three earnings reports have beat analysts' estimates. But when I buy for earnings, I like to open at least a couple of weeks and better yet, a month, in advance so I can participate in any anticipatory rise. I'll look at the earning announcement on Wednesday, and make a decision then.

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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