Gavekal Capital: One Stock, Three Charts

Tuesday, November 11, 2014

One Stock, Three Charts

Most readers are aware that we use a proprietary technical model in our investment process, based on point-and-figure methodology (for more on the basics of the technique, watch this short video).  What many may not realize is that we can look at a single stock through a variety of lenses, so to speak.  The first (and primary) chart that we look at compares the individual company to the MSCI World Index in order to better see the performance versus our benchmark.  Taking Novartis, a Swiss pharmaceutical company that is the largest in MSCI Europe (by market capitalization), we see that the stock price remained largely range-bound over the last several years, only recently breaking above long-term resistance to reach new relative highs:


Looking at the chart relative to the MSCI World Index, we are encouraged by the solid base and the reliability of the 45-degree bullish support line (BSL-- in dark blue, above).  However, it is important to also take into consideration the stock's performance versus its regional benchmark, MSCI Europe.  In the following chart, we see a similar uptrend forming out of a multi-year base-- but we also see previous support that could potentially prove to be resistance (the dark blue, 45-degree BSL on the left side):


Finally, we can look at the absolute version of the chart for Novartis.  Here we see only the price of the stock itself instead of plotting it versus a benchmark, as in the two previous examples.  In this instance, the uptrend is much more pronounced-- as evidenced by the high-performance support line (the darkest blue line that is more steeply sloped).  While we still see a strong base formation, the extended nature of the uptrend gives reason for more caution.  In addition, the uptrend seems to be moderating somewhat and could move sideways (or down) for a time, until it reaches an area of support:


Through point-and-figure-- and the various iterations shown here-- we find that we can gain useful insight into the movements in a stock's price performance.