Since Agilent has been flat this year, it is natural to assume that nothing of interest to investors is happening here. But Wayne Himelsein, one of my managers, doesn’t agree. Wayne has been calling short-term price movements more accurately than anyone else for the past 17 years. Just as the best poker players win by reading other player’s “tells,” Wayne evaluates the market’s “tells” to determine when to be aggressive and when to hang back. He says Agilent is poised to make a move up.
Ken Kam: Agilent has been volatile but flat this year. What is the attraction here?
Wayne Himelsein: The simple reality is that Agilent on January 1st was at about 67 and today it’s at about 68, effectively going nowhere in 9 months. However, Agilent is a quintessential example of how an apparent equality at two moments in time says very little about how poised this stock might actually be to now go somewhere!
Kam: How is the market “telling” you that this time Agilent is poised to move up whereas the last time things looked similar, the right call was to stay away?
Himelsein: The way we can understand and provide color is by taking a closer look inside the price action between those two ridiculously close price levels. In doing so, we’ll quickly see that the view is far from “nothing changed in 9 months” and revealing of positive hints.
Kam: I’m with you so far. Please go on.
Himelsein: Starting from January 1, and through the $60 low made at the beginning of July, we saw a brand new high of 75 (yes, 75 even) established in mid-January, followed by about 6 months of oscillating decline; the traditional “downtrend”.
Kam: What do you mean by “oscillating decline”?
Himelsein: By “oscillating”, I mean lower highs and then lower lows with a semblance of periodicity, or relatively similar spacing between peaks and troughs.
Effectively, the stock, was selling off in waves, giving us no real insight into when the downtrend would end.
Then, on May 15th, after a big gap down, and accompanying massive volume, the stock established a new low at 60-ish. Things were looking even bleaker, with a high-volume gap down in the middle of an established downtrend.Run for the hills would have been the wisdom of the moment.
Kam: So when do the positive signals start showing up?
Himelsein: Toward the end of June, as the 60-ish low approached, the stock did something beautifully different.
It did not find a proportionately lower low, but stopped, like a victim who’s had enough selling offers thrown at them. I’m done, it said, I’m not taking another push of seller’s pressure. And from that day forward, it rose, calmly and casually, back up to its first of the year level in the high 60’s. It made no more lower lows, and in fact made higher highs from Aug 7-9th versus its June 11-13th top.
Kam: The oscillating decline reversed direction. Is that this week’s market “tell”?
Himelsein: More so, its “periodicity” changed. It was no longer waving downward in wide oscillations, but starting late June, was now climbing upward in a narrow band; a completely different character for a newly revived stock who would no longer be the victim.
Finally, in September, it broke through its 200day moving average and starting looking higher, toward the clouds, for new heights to rise to.
Kam: The “tell” is not just one metric, it is a combination of factors that paint a picture?
Himelsein: Stepping back, and looking at all this action with a wide angle lens, we see a purported YTD “flat” stock, that recovered out of months of heavy selling pressure, that had the strength to stop, the composure to change the pace, and the new lease on life to turn around and start re-establishing its dominance. And it’s done so since early July with ease and with grace; steadily revealing its new presence.
Kam: In spite of the stock being flat this year, you think it is poised to move up. Do you have enough confidence in your analysis to buy the stock now?
Himelsein: I’m ready to buy into it, and even more ready for it to show me where it’s going to go next. So, instead of looking at the single dollar in gain its provided to the world since Jan 1, look at how much of itself it has shared with us so we can go on to make more money with it.
My Take: Wayne’s Logica Focus Fund (LFF) has a 17+ year track record at Marketocracy. Over that period, Wayne's model averaged 13.51% a year which compares well to the S&P 500's 6.07% return for the same period. In August 2012, LFF was made available as an investment option for clients in our separately managed account program. Since then, the composite of our client returns has exceeded the return on the model portfolio.
Because LFF consists of large-cap, liquid stocks, the S&P 500 is an appropriate benchmark. For those who aim for the lowest fees, an index fund is hard to beat. But for those who aim for the highest return after all fees, LFF has been a better choice for years.
For the full Forbes.com article, please click here.