Photo credit: Simon Varsano
The stock: Lions Gate Entertainment Corp.
The trend
Recent news is dominated by debt crisis, heated political wrangling and social unrest, vilified bankers and media magnates. All these elements of drama and uncertainty that are colouring the stock market's now precarious position may make for a good movie some day. For now, investors looking for emotional relief and excitement in the summer can be tuned into entertainment stocks as they attempt to defy a threatening period of market malaise.
The U.S. consumer discretionary sector was doing surprisingly well amid a limp North American economy, staying a respectable 3 per cent above the performance of the S&P 500 index over the past three months. The Powershares Dynamic Leisure and Entertainment Portfolio an exchange-traded fund with a selection of stock holdings in this group, had been sharing in broader consumer stock relative performance of the third quarter – at least until this week's downdraft.
Tuesday's market slide was particularly hard on leisure and entertainment stocks, many of them dropping over 4 per cent. Most posted only a modest recovery on Wednesday. Bearish trending entertainment stocks such as Disney Corp. and DreamWorks Animation SKG Inc. reflected the increasingly sullen tone for consumer expectations.
But this week's tremor may be a glitch for certain entertainment stocks that are delivering technically enticing trend opportunities. As summer movie blockbusters hit the screen and near-geriatric concert rockers amble toward outdoor stages across the continent, another consumer truth comes to light: Even when times turn hard, the audience still tunes in. Some entertainment content providers may weather consumer malcontent better than others.
The trade
Lions Gate Entertainment is a current Stock Trends pick, and presents an enticing trading opportunity as the market skids through the dog days of summer. Audiences would be familiar with Lions Gate's slate of popular television shows such as Mad Men and Nurse Betty, or perhaps have lined up for summer flicks like The Devil's Double or excitedly anticipating the new Conan the Barbarian movie.
This Vancouver-based production company trended positively through June and July, scaling from the $6 level to a recent high of $7.21. This week's market jitters have sent shares back below $7, but this may be a good opportunity to pick up shares. The stock held out better than its peers as the market fluttered on Tuesday, so a revival of the current relative strength should help fuel more technical positives ahead.
The upside
The stock's chart pattern suggests a 10- to 15-per-cent gain on the current stock price before resistance would sap performance, pending more generally improved conditions for the stock market.
The downside
A good stop price for exiting this trade is around the $6.50 level – a short leash for this market contrarian consumer play.
Skot Kortje has been analyzing stock market trends for 15 years using trend analysis. His Stock Trends indicators have been published by The Globe and Mail since 1995. For more go to Stocktrends.ca