Thursday, April 19, 2012

RRR: Zacks' bad call

RSC Holdings Inc. (RRR), which rents equipment in 43 U.S. states and three Canadian provinces under the name RSC Equipment Rentals, had the most bullish chart of 10 stocks added today to the Zacks top-buy lists.

However, it has a merger agreement with competitor United Rentals Inc. (URI), and the deal is scheduled to be completed  by April 30.

So, this is not a trade for me. I don't play news reports. I'm a trend-based trader. And whatever RRR's chart looks like today, that chart will be coming to an end very soon.

Bottom line: I think RRR was a very bad call by Zacks.

Zacks' selection system is largely automated -- plug in the parameters and see what pops out -- and  they apparently didn't adjust for RRR's impending absorption, thereby illustrating a flaw of any automated system, be it based on chart indicators, analyst opinion or company financials.

Algorithms can only go so far. At a certain point, they cannot substitute for human judgment.

I really dislike all the other charts added to the Zacks top-buy list today, so I won't be writing about any of them, either.

And as for Zacks: Shame on you for not performing due diligence in constructing the top--buy list, or at least for failing to explain why RSC Holdings had a place on it.

A final thought: This is the second day in a row when the most bullish chart on the Zacks top-buy list has been flawed, raising the question of whether Zacks in the present market environment is in fact a reasonable screening tool.

I screened the stocks using a tourney bracket with a one-month daily chart and a three-day half-hour chart, and then turned to a five-year weekly chart for the broad context in analyzing the bracket winner. See my essay "10,000 Charts" for a discussion of my screening methods.
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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