Shoppers Drug Mart Corp. showing signs of weakness

Jun 27th, 2012 – Comment

What is also easily observed is the resistance that has surfaced along the 200-day moving average and a death cross that is about to surface.


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Lou Schizas is an equities analyst, investor, entrepreneur, professor and television and radio personality – and a true believer in the happiness-inspiring powers of capitalism.


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Hi Lou,

I’m trying to learn how to pick my own stocks so I really enjoy reading your column and I’m learning a lot. I read your last comment on Shoppers on May 5, 2010, and was wondering what you think of the stock now. I’m looking for somewhere safe to hide and still collect dividends (like the rest of the planet)

Thanks,
Susan

 

Hey Susan,

Congratulations on deciding that you wanted to master some new tools to help you better manage your assets. As far as finding a safe place to hide in these uncertain times, it’s a lot of work but trust me it can be done.

The May 5, 2010 analysis that I conducted for Sophie suggested that there was risk associated with anticipating a bottom. At the time Shoppers Drug Mart Corp.(SC TSX) was trading for $35.80 and had been in a severe downtrend. The shares did find a bottom near $32.00 in late June of 2010 after which began a healthy advance which has recently been challenged.

A review of the charts will help us better understand the case for SC.

 

The three-year chart outlines the uptrend that had been in place since 2010 and the pullback that began in the spring of 2012. What is also evident is the double top that formed in April which put a caution flag on the track for investors who were able to read the signs along the path.

A double top is a reversal pattern that intones that an advance is running out of gas and that the prudent investor should make sure they know where the exits are. Finally, the advance met resistance at $44.00 which has been a proven barrier over the last five years.

 

The six-month chart very clearly depicts the double top that formed in April giving rise to a retreat from $44.50 to $39.50. What is also easily observed is the resistance that was met along the 200-day moving average and a death cross that is about to surface.

The MACD and RSI both indicated that it was time to get off the ride in April. Currently neither is suggesting a break above the 200-day moving average.  The company is forecast to report Q2 on July 20th which is an important trigger for a movement in the stock.

From the evidence on hand I believe it’s time to head to the check out and look for a better prospect that could meet your needs. The dividend yield of 2.57% could get better on a pullback in the shares.

Make it a profitable day and happy capitalism!

 

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