Herman Miller Breaks Out of Mid-Cap Industrials (w/ Tom Bruni) | Stock Trade Ideas - YouTube

Welcome to trade ideas. I'm Jake Merle sitting down with Tom Bruni of all-star charts Tom great to have you back on the show

Thanks for having me Jake

So today were we talking about Herman Miller and this is a mid-cap industrial stock and the company focuses on producing and designing

office furniture they actually just had an earnings report a few weeks ago and they beat

Expectations the stock popped like 20% on the news broke some technical resistance and is now trading at all-time highs now

We're gonna get your actual trade and the technical set up in just a minute

But before we do, so, can you please briefly review? You know how you came up with this idea in the first place?

yeah, so I've liked the midcab industrial space for a while, but

Regardless of that the thing that kind of put Herman Miller on my radar was to that breakaway gap above resistance

Like you said they beat earnings

Expectations, you know buyers came in to the stock gapped it up fifteen or twenty percent and it's been consolidating their since so to me

this is a very

significant breakout and one I want to be paying attention to and so generally speaking why is now a good time to get involved with

Industrials and the stock. Yeah, so it's an interesting environment if you look at where we were a couple months ago

I was here in both March and May and we were talking about the range-bound nature of equity markets around the world

We weren't seeing a lot of breakouts not a lot of up trends. And so that environment was good for

Looking at different asset classes

And I think we're still kind of in that environment if you take a look at the SMP global 100

That's kind of a broad measure of how the global equity

Market is doing it's bumping up against that $50 level

once again

we tested it three times over the last 18 months or so and

We think the more times the level is tested the more likely it is to break

And so if we're seeing equities as an asset class breakout

We want to be owning the strongest stocks within that and mid-cap industrials foot that bill

and then within that herman miller is definitely a leader within that space and so why industrials specifically why not some other sector

Yeah

so I think it's important to kind of

again

Setting the background if you look at rates around the world if I brought a developed market ten-year chart of everything from the u.s

Down to you know, France or New Zealand. There's a bunch of them on there

But really the purpose of that chart is to show that since October

Rates around the world have been collapsing and now we're finally starting to see some evidence of stabilization

Another chart that I like to look at is the regional banks - real estate investment trust ratio

And basically what you're measuring there is the equity markets

expectations for yields going forward and the rationale behind that is that

If equity market participants think yields are going higher they're going to overweight

regional banks because they're benefitting from

Those higher rates as opposed to real estate investment trusts reading rates are going lower

You want to be overweight those because there are more defensive sector. They have a high yield

And so they're gonna benefit from falling rates

and so when you see that ratio start to stabilize like we are now and move higher that signaling the equity market participants are

moving money into regional banks away from reeds and

That's signaling that we might be near sort of a bottom in rates

And so with rates stabilizing and with the bank stabilizing you're saying that's giving you confirmation

That it's time to get involved with cyclical such as industrials. Is that right?

Yeah

Generally when we have divergences between the regional banks REITs ratio and the 10-year yield

You see them kind of converge again. They can't really stay too far apart for too long

It's just not something we see throughout history. And so the 10-year yield in the u.s. Is hanging out below the

2.06 closing low from 2017 and so

what I think is potentially setting up there is a failed breakdown where

Prices or yields in this case broke below that level are they being?

consolidating for a few days selling pressures waned and now yields are trying to get back above that level so that would

Potentially set up a squeeze in rates sending them higher that probably coincides with some sort of bottom in

Developed market yields around the globe and then if money's flowing out of bonds

It's probably trying to find a home in other places like commodities or equities

So I think strong areas of the market like industrials have held up. Well, so it's reasonable to expect that

When money is flowing back into equities, it's going to go to those areas

So in addition to that ratio chart you just mentioned

What else are you looking at that's going from your view on rates in addition to the ratio

We're seeing you know money flow into other areas of the market like financials. They're breaking the down trend line from their 2018 highs

They're setting up for a retest of their 2007 highs 2018 highs and if they get above that

That would be a massive breakout

If you look at basic materials

They basically done nothing during that time period to the last 18 months or so and just like financials

They're breaking the downtrend line from the 2018 highs

So we're seeing money flow there even healthcare, you know

It's kind of been left for dead medical devices were we're a leader earlier in the year

They kind of cooled off, but now they're leading again

You know biotech is finding its footing and so we're seeing healthcare both on a cap weighted and equally weighted basis

Challenge its former highs and I think you know, it continues to go higher so bringing it back to Herman Miller

What key levels are you looking at and how exactly would you about making the trade if we're seeing this breakout in?

industrials relative to the rest of the Mid Cap space

You know

I think you kind of have that beam as a tailwind for this name and then Herman Miller

specifically if you look at the the relative chart it's breaking out of

Multi-year multi-decade downtrend relative to the industrial space as a whole. So not only do you have absolute strength

You have relative strength there

which I think is important then to your question on an absolute basis that $40 level is very

Significant because over the last 20 years. It's been resistance. So in technical analysis, we have something called polarity

And that concept basically means that former resistance turns into support

Former support turns into resistance and that's exactly what we're seeing here

You know, we had a breakaway gap above that $40 level prices are consolidating and now they're trying to continue higher

So to me, it looks like buyers are in control and they're targeting, you know

61 on the upside over the long term so over the past couple of weeks

We have seen this, you know 20% or so rally and the stock is trading at all-time highs

Does that worry you at all that had happened so fast so quickly

So I think in the near term, you could potentially see a pull back to that $40 level

I think that would be a very attractive entry on the long side

But if you put it within the structural context of the stock, like I said, it's got nowhere for 20 years

So this is just the initial breakout anyone who's owned the stock ever

Is now making money and so when it gets back to that forty dollar level if and when it ever does

You know people are gonna be buying the stock there because they want to be longer

So as far as key levels you'd be looking at that forty dollar level to enter the trade

Yeah, I think you can buy it here. It's right around forty five depending on how aggressive you want to be with your stop and

You know what your your target is if you're using my longer term target near sixty one

I think the entry here is fine

But if you're gonna be a little more aggressive in terms of your timeframe

I think it's close to forty as you can get it

The better and what for DB that line in the sand where you'd exit the trade as well? Yeah exactly

So, you know people have different ways of setting their stops for me

It's just a matter of when is the thesis no longer valid and to me that's the forty dollar level if we're below that

You know, then we have a fail breakout and it gets messy

So I'd rather stay out of the way

If it does do that, you know

We can always re-enter

If it gets back about that forty dollar level so over what time horizon do you expect this thesis to play out?

This is a longer term base. So I think over the next year or so

It's probably a good time frame. And what would you say is the biggest risk?

The biggest risk here is probably what the broader market does what equities as an asset class do

So if we do see this be a fail break out in the major indexes, and it does leave lead to a larger decline

I think

Herman Miller will probably get pulled down with it with that said the reason I like playing this potential breakout in the broader market with

A stock like Herman Miller is because you have all of that former support there

You know, there's a 20-year base, you know

There's gonna be buyers at that forty level and if there's not well your risk is very well-defined

You can take the loss. And like I said, you can always re-enter if and when it starts working again

Well Tom, that was great. We'll see how it plays out in the year ahead. Thanks so much for joining us

Thanks for having me. So tom is bullish on industrials specifically

He likes buying Herman Miller ticker symbol

ml H are

Between forty and forty five dollars with the stop-loss below forty and a target price of 61 over the next twelve months

That was Tom Rooney of all star charts. And for real vision. I'm Jake wrong

You

You