About the Author

Stephen Oakes is an experienced financial titan from New York who brings Wall Street to Main Street. Over the past 11 years, he has developed and tested the renown, Oakes Momentum System, which uses a unique constellation of technical indicators to find timely buy and sell points. He holds an M.B.A. in the United States (New York) and has studied internationally at the Reims School of Management in France.

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Momentum Stock - Answers Corp (ANSW)

October 25th, 2006 • Related • Filed Under

Answers Corp (ANSW) is our latest momentum find. The firm operates an answer-based service that provides computer users with content covering millions of topics, through its Web site, Answers.com, its optional downloadable applications and distribution channels. The Company’s flagship site, Answers.com, is an aggregator of information and reference content, on more than 3 million topics, covering general reference, business, arts and culture, legal, medical, science and technology, people, places, music and many others. Its topic library contains over 60 titles from brand-name publishers. Additionally, it offers ‘1-Click Answers’ - a software tool that facilitates more efficient access to Answers.com by allowing users working in any application such as e-mail, spreadsheet or word processing to click on a word or phrase within a document and access Answers.com’s online library via a pop-up window. (Source: Bigcharts)

ANSW Answers Corp.
Source: Bigcharts

The chart above is a two-year weekly chart. I wanted to show you just how fast the stock initially took off, jumping from $6 to almost $30 per share back in December of 2005. Since then, the stock has pulled back to reality to test initial breakout near $8 per share. The recent test of this key support level was made in the early days of September and looks to be the end of the stock’s downward trend. Over the past year the stock has been trading in a Japanese Candlestick charting pattern known as the “descending wedge.” A surge in price outside this formation, or wedge, signals that the stock will likely move with conviction. In this case, this means that shares of ANSW will trade definitively higher in line with the direction of the breakout.

In the past two months alone you can see that the stock has begun to make higher highs and higher lows which is indicative of an upward trend. The MACD and DMI indicators also justify our bullish stance on this play. Until one of these two indicators turns negative on the weekly charts, I will not be inclined to sell any shares.

Our Recommendation: Buy shares of Answers Corp (ANSW) and hold until Jutia closes the position or until you have been stopped out. You may wish to take half of the profit off the table near $25 per share where resistance is likely to occur. Place a stop loss between 5-10%.

There Are 6 Responses So Far. »

  1. Comment by John on 27 October 2006:

    Hi Steve,

    Based on your summary of a breakout, I think I might have spotted a stock that looks like a breakout but not sure. I was wondering if you wouldn’t mind taking a look and let me know if I identified this properly and is it about the right time to get in or not. The ticker symbol is: TIE

    Thanks,

    John

  2. Comment by Stephen Oakes on 27 October 2006:

    John,

    Dead on! TIE is a buy a the right time. Excellent find. How did you happen to come across this play? I will post it and position it in our Jutia Portfolio. Thanks for your contribution ;)

    Stephen

  3. Comment by John on 30 October 2006:

    Hi Steve,

    I was in Tie last year when it ran all the way up to $90 before it split and then got out. But I left it on my watch list and after reading your analysis on breakouts I took a look at its DMI and MACDs and thought that this could be on its way for another run. The only concern I have it that earnings is coming out next week, so I’m not sure how much that might be contributing to the breakout, but I think I will jump in here and see what happens. How long do you propose to stay in a stock like this?

    Thanks,

    John

  4. Comment by Stephen Oakes on 30 October 2006:

    John,

    Great questions and congrats on riding TIE to $90! Stocks that split and continue to run are an excellent sign of better times still ahead. In the days following TIE’s earnings announcement, you may see some profit-taking, but it will not be enough to derail its long-term price appreciation potential. If you do decide to initiate a position in TIE before earnings, be sure to place a stop loss (5-10%) that will give the stock enough room to maneuver.

    Plan on remaining in the stock anywhere between 2-6 months, given that our indicators hold. Liquidate your position if either the MACD or DMI fail on the one-year weekly charts OR your stop loss is hit.

    I will be tracking this position so you should see occasional updates and further analysis as this story develops ;)

    Stephen

    Stephen

  5. Comment by John on 1 November 2006:

    Hi Steve,

    I was wondering if you could help me and possibly other Jutia followers understand if this P/E ration of 25.7 could hold up for a stock that just disappointed the market during it recent earnings report. I am trying to understand how to determine or justify what a proper P/E ratio would be for any stock. Is there a formula or rule of thumb to follow?

    For example, how would we calculate what the expected P/E ratio should be for this stock based on its latest earnings release. Any help would be appreciated.

    Thanks,

    John

  6. Comment by Stephen Oakes on 1 November 2006:

    John,

    Great question. I believe you can not analyze P/E RAatios across the board. Companies that are smaller and experience tremendous growth often have high P/E Ratios, depending on the industry of course.

    In general, if the company is more established with less growth and holds a larger market capitalization, you should expect to see lower P/E Ratios. If for instance you do not know where the company falls, you should compare its P/E to similar peers within its industry.

    The are really two things that you should ask yourself:

    1)What is the company growth rate and is this rate expected to increase into the near future?

    2)Am I comparing companies that are within the same industry? This is a must because every industry is different. Lower growth industries such as utilities would have low multiples because their growth is limited. If on the other hand we are viewing the technology industry which has explosive growth and is a constantly changing then we should expect to find some high P/Es.

    You can compare P/E Ratios by industry by going to the following address:

    http://www.investopedia.com/offsite.asp?URL=http://biz.yahoo.com/p/industries.html

    I will post this on the forums for everyone to see. If possible, could you post your comments there if it does not apply directly to this post.

    Thanks,
    Stephen

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