Pick(s) for the Day

Today I have a pick to discuss. It is the home of the flame broiled Whopper, Burger King. (BKC) I am going to describe how I analyzed the chart and the indicators that I used in picking this stock.

First we will start with the candlestick indicator. Yesterday (03/04/09) it created a bearish candlestick indicator, known as a bearish harami. Simply put, the stock price closed lower than it's open, and this movement was within price range movement of the previous days. The day before the stock price closed higher than it's open. This indicator is a major that informs me that a pivot in the price direction is probable. It requires additional flags to confirm.

So now I analyze my other indicators. Lets look at the RSI (Relative Strenght Indicator). The RSI is at 58, not a good sign. This tells me that the stock has strength to continue to move up. This could be a disappointment but I don't dismiss it right away. So lets continue.

Lets look at the stock price relationship to the Bollinger Bands. Currently is at a the upper Bollinger Band. Now, I wouldn't put a lot of opinion on the Bollinger Bands, because they are a moving resistance or range indicator. They really only suggest that the stock should be watched for reversal indicators. So to me it is confirmed by the candlestick indicator and not the other way around.

I have two more indicators that I like to look at. They are Stochastics and MACD. Both of these agree with the chart that the stock is in an up trend. But that is not what I am concerned about at this point.

The Stochastics are presently near the 80 mark. The 80 mark is a standard indicator that the stock is overbought and that some selling is bound to take place. In addition the Stochastics have a signal line that follows its movement. If the Stochastic starts to turn toward the signal line in an attempt to cross it, then there is further probability that the stock is reversing. This just happens to be true on this day.

The MACD (Moving Average Convergence Divergence) is similar to the Stochastics in that there is a primary line and a signal line. In this case I also have the histogram turned on that tells me what the difference in the two lines are. The histogram told me that the difference between the two lines was shrinking in comparison to the day before yesterday. So this is further indication that a reversal in movement is likely.

So because the price is at the upper Bollinger Band, the stock created a bearish harami candlestick pattern, the stochastics and MACD show signs that the move is at an end, I bought a put option against the King.

BKC PX => OTO 1.85, Stop @ 1.30 (Risk of 30%)

That is my opinion, you can take it or leave it.

Disclaimer: I am not a stock broker; I am not a financial advisor; I am not recommending to you what to buy or sell. I am just an opinionated investor. If you decide to follow in my footsteps you are taking risk. It is inevitable that I may be wrong. So if you are going to follow in my footsteps that is your own personal decision. I am not responsible for any loss that you may, and probably will, incur regardless of my opinion.