Thursday, August 04, 2005

Family Dollar Cracks & Russell 2000 Softens

I mentioned Family Stores as a short candidate a couple of weeks ago since it's in a really huge head & shoulders pattern (which is obviously one of my favorites) and - sure enough - it's starting to break down. It was down nearly 10% today alone.

By traditional technical analysis measurements, the target price for this stock is so low I don't even want to utter it. If you look at the entire history of this stock, the pattern is gigantic. So the neckline has, in classic style, changed from support to resistance. If the pattern sticks, the price shouldn't penetrate above this neckline again for a very long time. (I'll mention once again that clicking on any of these pictures will make a much larger graphic appear).

As for the market in general, today there was tremendous weakness in retail (which has, for a couple of years, been absurdly strong - check out Nordstrom, Abercrombie & Fitch, American Eagle, Coach, etc.), and all the broad indices sank. The Russell 2000 (IWM), a favorite of mine recently, has been "kissing the underbelly" of the trendline it broke many months ago. But, as an ascending trendline, one can be short this market, remain safely beneath and trendline, and still lose money every day - - because it's still going up!

In any case, after a long time clinging to the underside of this line, it finally fell away today. Tomorrow's unemployment report will probably drive the market to either trim these recent losses or more firmly push it downward. Long term, I remain confident of a major downward move, no matter what happens in the short term.

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