A closer look at Book Publisher MHP

Posted by downtowntrader | 2/04/2010 12:57:00 AM View Comments

Here is an intro to an article I wrote on the Book Publishers group last night. I wanted to follow up with a closer look at some charts of McGraw-Hill Companies (NYSE:MHP). I can't post the whole article here, but click through the link if you want to read the rest, and come back to look at the follow up charts below.

Recently, there has been a lot of focus on the eBook industry after Apple, Inc.(Nasdaq:AAPL) released its highly anticipated tablet (iPad), which will compete directly with the Amazon.com, Inc.(Nasdaq:AMZN) eBook reader, the Kindle. Along with adding the new iPad hardware platform into the eBook reader mix, Apple is also introducing the iBookstore. This introduction has several implications for the industry, especially when coupled with Apple's wildly successful foray into the mobile application space following the release of the iPhone.

One indirect impact is that the introduction of an alternate marketplace is providing publishers with some leverage against Amazon. Amazon has had the leverage to enforce its pricing plan on publishers due to the lack of viable alternatives available to them. While much of the focus has been on Amazon, this is a good development for the publishers as well, and their stocks are quietly revealing this as they trade near 52-week highs.

I really like the chart for this stock and the biggest issue I have right now is more with the general markets than with this stock. As I mentioned in the article, its possible that there is enough of a catalyst with the introduction of the AAPL iBookstore to shield this group from a minor correction. However, if the markets suffer a deep correction or worse, than it will probably be inevitable that MHP will follow suit eventually.

I won't rehash what I wrote in the article in regards to the daily chart, but the short story is MHP recently gapped above a prior breakout and consolidation. It is now forming a flag which could lead to a follow through if cleared.

What I didn't show in the other article is the weekly chart. The prior breakout in December followed by a consolidation above the breakout shows up much more clearly in the weekly charts. As long as this breakout doesn't fail, it looks like the logical move is a test of the prior high near $45. However, it could be that the underlying trend has changed here as well. If you notice MHP has been in a clear pattern of lower lows and lower highs. That changed last Autumn, as MHP set a higher low. It followed it up with a higher high on the December breakout. While this is positive, the real test will be that high just above $45.

There are several different setups here, ranging from a swing trade to a longer term position trade, so please exercise your own due diligence if you decide to trade this. I don't have a position in this currently but will be monitoring it over the next few days to weeks.

Good Trading,


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