Whirlpool – Buy or Sell?? 1/24/12

WHR- Buy or Sell? That is the question.

Recently I attended a two-day class conducted by a couple of gentleman from WHR. They did an excellent job of communicating the subject matter at a fast pace, keeping us learning and working through training exercises late into the night. I wanted to provide them an example of stock analysis and trading systems by taking a look at the Whirlpool stock WHR and commenting on how I see it.

The company stock chart is the voice of the company, just like a control chart is the voice of the process. A control chart allows the viewer of the chart to see whether there is a common or special cause of variation by use of control limits. Similarly a stock chart of the company is the voice of the company when you place a proper trading system on the chart. It tells you when you can buy the stock with a reasonable expectation of gain, and when you should sell the stock to protect yourself from losses.

At first glance, the WHR chart shows a buy signal on 12/23/11. Interestingly, if we look back at my earlier blogs that is the same day I reported seeing a buy signal on the S&P500 (SPY) chart. It is always nice to buy a stock long when the market is signaling long as well. Why? Because it is better to trade with the overall market direction than against it.

If we choose to simply follow my system signals on WHR, I would say we could have gone long 12/23/11. The stock is up about 8% in the last month since that signal. Still, there is reason to be cautious. I am always very conservative and what gives me pause is that the stock has been in a down channel since 6/30/10. It has worked its way down in that channel over a rather long time – and we can hope that it will break out of this channel and resume its true upward trend again. The stock would need to rise above $68 to be peeking above the upper line of the down channel.

WHR is also trading below its 200 day exp moving average – shown as a bold black line. I feel better trading a stock long when it is above the black line as happened on 7/14/09.

Still, I would consider going long with part of my money when I see a long signal, because I have no way of predicting how long a signal will last. The uptrend shown could sustain itself through the Summer of 2012, or collapse next week. If I saw a down signal after the data came in end of day, I would close my long position at market open next day. It is much safer to set up technical analysis based systems, test it and then follow it versus using a gut feeling or using a “hope” system.

The market is still under a go long signal. But it seems a bit overbought to me right now, and I expect we could see a modest pullback and then a resumption of the uptrend for now. I will add to my long positions on a pullback. But if I see a down signal on the stocks I own, I will close my long position the next day. It is far more important to protect myself against massive losses by jumping off the train when it is rapidly speeding downhill in a recession.