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Every day we look for stocks to buy on weakness and Arista Networks (NYSE:ANET) tops the list of selections by our Stocks In Demand or SID system. You can see ANET at the top of the list of three stocks that our SID program selected for us to look at today. Our previous article was on a longer-term buy signal after a sharp selloff, but here we are presenting a short-term, buy on weakness signal, targeting a retest of the old high resistance.
ANET is at the top of the list because it has the highest SID score shown in the SID column. The score is color coded green to indicate that this is a Buy Signal. Our proprietary SID score is our most important Buy Signal and uses both fundamentals and technicals.
You can see two of the fundamental Buy Signals on the report below. Our computer is calculating a 12-month return of 15%. This fundamental buy signal is shown in the Implied Return column and is color coded green because we think this type of return is a buy signal.
Another fundamental Buy Signal is shown in the Fund column and is color coded green. This is an overview of the fundamentals that institutions consider and are convinced enough to buy the stock. Naturally, we want to do our own due diligence on any stock selected by our SID computer system. We do our due diligence by checking with SA analysts and the SA Quant ratings.
Here is our buy on weakness report showing the buy on weakness signals in the Timing, Tmg, and Confirmed, Cfrm, columns. The Tmg signal is early and the Cfrm signal is late.
Notice two important technical signals on the above report for ANET. In the 20-day bar chart, you can see red bars of Supply. These are changing to Demand. Secondly, notice the Stop-and-Reverse or SAR signal in the SAR column. This signal tells us when Sell signals are reversing to buy signals. You can see three Buy, or B, signals for Tuesday, T, Wednesday, W, and Thursday R, in the SAR columns. The rest of our technical signals are shown on the chart below. Before going to the chart, let’s do our due diligence with SA analysts and Quant ratings.
SA Quant ratings are strong for ANET for Growth, Profitability, Momentum and Revisions, but a weak rating for Valuation which is typical for growth stocks. The overall SA Quant rating is a Hold. Likewise, the SA analyst consensus rating is a Hold. However, the last three SA analyst ratings are better with a strong Buy, a Buy and only one Hold. Our due diligence review using SA has not changed our conclusion on ANET to buy this bounce up from short-term weakness. The daily chart, shown below, is a short-term chart, as opposed to the longer term, weekly chart used in our last article on ANET.
Here is the daily chart looking to next week’s price movement for ANET. This chart is long term for day traders but short term for investors:
At the top of the above chart, you can see the dramatic improvement in money flow from deep in the red to now in the green. This positive move up in money flow reflects the movement higher in price. Chaikin money flow, CMF, makes it easy to see the positive Demand driving price higher.
Below CMF is the MACD signal showing improvement and trying to trigger the buy signal. That occurs when the black line breaks above the red line.
Next is the price chart, and you can see these positive, technical signals are moving price higher and attempting to complete this move up by reaching the old high. A breakout would be a very positive signal.
Just under the price is the most important signal for mutual funds trying to beat the Index. As you can see, this signal has flattened out, meaning recently ANET is only a market performer and not an Outperformer in recent days. As long as it performs as well as the market, portfolio managers won’t worry. However, if the longer-term trend changes direction to down, underperforming the Index, then they will underweight it.
Next is the Full Stochastic signal that triggers the vertical, blue line Buy Signal that we have drawn to compare with the other signals, especially MACD. You can see that the dropping line has reversed early, without going all the way down to oversold. That is a positive if it continues up, which we expect. Also, you can see what an early, leading indicator CMF is as the red starts improving and the direction changes to up.
Finally, at the bottom is the last of the technical signals and it shows supply dropping. Based on the other signals, we expect rising Demand, to crossover Supply and take price higher. However, both Demand and Supply are very weak, and you can see this as the green and red ADX lines merge instead of Demand rising strongly.
Conclusion
Our most important SID Buy Signal is in place for ANET and the sellers taking price down have failed to change that Buy Signal. That tells us the sellers were wrong and to buy the weakness. Our positive fundamental and technical signals are confirmed by SA analysts and Quant signals. So we feel confident this coming week that ANET price will continue reaching for its old high shown on the chart. Of course, we have to watch the market (SPY) which we write about every day for our subscribers. If the market goes down in Sept. and Oct., as we expect, then it will take all boats down, especially overvalued stocks like ANET.
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