Gavekal Capital: United Internet: At a Technical Crossroads

Monday, April 6, 2015

United Internet: At a Technical Crossroads

With European markets still closed today, there is very little in the way of company news.  One item that caught our eye, however, was an analyst upgrade (from 'Reduce' to 'Add') for United Internet, the German Internet Software & Services company.  One of just 17 Information Technology stocks in the MSCI Europe index (versus 44 in MSCI Pacific and nearly 100 in MSCI North America), United Internet manages to qualify as a Knowledge Leader in our proprietary screen*-- as do 13 of its peers (an 82% pass rate, compared to 75% for MSCI Pacific and just 68% for MSCI North America).  While the company meets our criteria to be included among the most innovative enterprises in the world and one might then reasonably infer that a rating upgrade is not out of the question, a few characteristics in our point-and-figure chart** for United Internet might indicate the need to temper the enthusiasm just a bit.


The structural uptrend (going back around three years to 2012) is somewhat extended over time and has clearly lost some momentum over the last year.  Long-term support from the 45-degree bullish support line (aka 'BSL', medium blue, slope of 1) was tested recently and held, but the high performance support line (dark blue, slope of 2) appears to be in jeopardy of a significant breach.  In addition, the stock hasn't made any new relative highs in price since early last year (the 'x' near C-5).  While the uptrend could certainly re-assert itself, we have to consider the likelihood that it will be weaker than before as well as the possibility that a top has formed at 'C'.  Whether that overhead resistance leads to a significant decline in relative price (back to 'H') or a new trading range (perhaps at 'E'?) cannot be predicted.  The only thing we can say with any degree of certainty is that this security is at an important junction with respect to its price performance compared to the MSCI All Country World Index and it seems to be an inopportune time, technically speaking, to make overly positive prognostications.

*for more on the unique way we look at individual companies' fundamentals (and why), see here, here, and here.

**for more about our point-and-figure charting methodology, see here.

The information listed above is for example purposes only and should not be construed as the Investment Advisor’s opinion or investment outlook.