Construction & Farm Machinery Stocks Look DangerousJanuary 22, 2014
When see the majority of companies in any given industry showing similar technical chart patterns we take note. Usually when this occurs there is a bigger force at play which may or may not be obvious at the time. In the case of the Construction & Farm Machinery sub-industry we observe two general chart patterns in our proprietary relative strength point & figure charts: 1) the company has experienced a period of strong relative performance but the trend now shows signs of reverting to a downtrend or 2) the company has been in a tight trading range for several years and is now attempting to break through the bottom of the trading range. This is concerning trend behavior for a group of stocks that are soo sensitive to global, and particularly emerging market, growth. We also note that the average stock in this sub-industry trades at 17.4x cash flow, which is 130% the 10 year average cash flow multiple at a time when EM growth (ex China) seems persistently weak.