My Technical Opinion on a Very Widely Held Stock

corporate profitsThe recent sale of Edvard Munch’s “The Scream” for almost $120 million is a clear indication of the market sentiment regarding hard assets. The sale took place at Sotheby’s Holding, Inc. (NYSE/BID) auction house, one of a few firms whose investment strategy is to auction off high-end art and antiquities.

This sale was the highest priced auction sale in history, showing that the market sentiment for rare assets is still very high. The reason why the price went so high is that the collector assigned the value of the art as far more than paper money. When market sentiment gets to the point where the actual paper money is worth less than hard assets, this is a warning sign to everyone.

Yes, this art is only for the super-rich, but if they’re willing to trade a paper money for a painting, this tells me that paper money is becoming more worthless every day. The market sentiment of the super-rich is not to be ignored. If their market sentiment indicates that money printing is causing the devaluation of the dollar, then I would suggest following in their steps and protecting your assets.

While we can’t all participate in the high-end art market, regardless of our market sentiment towards paper money, one way is to look for firms the corporate profits of which will benefit from this market sentiment. The sale took place at Sotheby’s auction house, the main publicly traded firm available for investors who believe that the market sentiment of hard asset values will continue to go up. On Thursday, May 10, 2012, the firm will announce quarterly corporate profits. Even with this sale and the profit generated, I think it will miss corporate profits. Therefore, I would not invest in the stock at this point.

The stock is coming off two straight quarters in which there was a decline in revenue and, even though the high-end art is selling, a lot of the mid-to low-end art is not. Partially I think this is a sign that, even though the market sentiment for many is to trade paper money for assets, people don’t have a lot of disposable cash left to acquire such assets.

corporate profits

Chart courtesy of

Sotheby’s stock does trade at a book value of almost three times, quite high for a firm that isn’t growing corporate profits at a fast pace. While profit margins are very healthy at over 20%, quarterly revenue declines recently have worried me. Looking at the weekly stock price after a big run-up from 2009 to 2011, the stock has pulled back and retraced into several Fibonacci levels. This area will be of significant resistance and impede further moves up, as market sentiment is now essentially flat; neither bullish nor bearish.

investment strategy

Chart courtesy of

Looking at the shorter term, you’ll notice two horizontal lines that have locked Sotheby’s stock into a trading range. With so many reversals along the trading range, it’s not possible to predict which way will break out, only that whichever side the stock does break out, it will be significant and will most likely continue in that direction. News this week about the company’s quarterly earnings might be the catalyst for the stock to break the range and for a change in market sentiment.

With a series of quarterly revenue misses, I am doubtful Sotheby’s can beat estimates. Looking at the chart, there aren’t that many bullish signs to me. If somebody knows something about the company’s corporate profits, they’re not buying ahead of the news. Investors are sitting on their hands and I would recommend you do the same.