Less than two months ago, as described in “Living and Learning with Tom Demark Indicators”, I sold my position in Western Digital (WDC).  The sell was based on my reading of the Demark TD-Sequential Indicator.  In that post, I said that “Tom Demark would say that a better entry point lies in the future for this stock.”

The time has come.  I purchased WDC today (July 28th) at $27.84 per share, with 3% of my portfolio.

I’m getting back into WDC at a 17% discount to my June sell price ($33.72).  So it was a good decision to sell in June and wait for a better entry price.

Only this time I’m not using TD-Sequential as an entry indicator.  Instead, I’m using Demark’s ‘Range Expansion Index” (TD-REI).  TD-REI is Demark’s Overbought/Oversold indicator.  Here’s why I’m using  TD-REI instead of Demark’s more famous Sequential Indicator:
TD-Sequential captures significant trend exhaustion points.  But not every stock will complete a TD-Sequential, especially on the longer time frame (weekly) that I am interested in.  My goal with my stock purchases is to buy highly ranked candidates (those below a Margin of Safety) on short-term weakness.  I would miss purchasing many of these stocks if I wanted each to form a TD-Sequential pattern.  Thus I’ve been looking into alternatives.

TD-REI is similar to the more familiar Relative Strength Indicator (RSI) that is standard in every stock chart package.  But Demark as usual has made some significant improvements.  TD-REI prevents buying into a steep decline/advance by requiring price to exhibit some proof of slowing its decline/advance.   Like RSI, TD-REI is an oscillator that fluctuates between +100 and -100.  Overbought/Oversold readings are +40/-40.  The formula to calculate TD-REI is a little cumbersome, though Excel can handle with ease.  I’d refer you to Demark’s books (or maybe a future post here) for the construction.

Value
It’s not just technical analysis that keeps me interested in WDC.  Here’s a few of my calculated numbers:

FCF Yield:                                   16%
10-yr median ROIC                   26%
10-yr median Profit Margin:    7%
Hussman Price/Peak FCF:     5.0

and 43% of the market value is cash, an enormous amount for such a large company.

Here’s  a view of the prior 10-years free cash flow:

And here’s a few links to other articles describing the value in WDC: