More Short Ideas

I continue to be very pleased at the structural breakdown of the stock market. It's like watching a cruise ship turn around; it's slow, it's steady, and it's massive.

Below are a bunch of different short positions I'm in right now; as always - (disclaimer-time here!) - these are just for your observation, entertainment, and further analysis. These aren't recommendations. But they're worth checking out.

Here's Comtech (CMTL) in a very toppy looking pattern with a nice clean stop price.


Next is Conmed (CNMD), which I've been following a long time. It broke beneath this neckline a couple of weeks back and has now retraced to the underside. Looks like a nice short opportunity to me.


Everyone's favorite Internet stock, Google (GOOG), is below; once again, a nice clean break with the price kissing the underside of what used to be support:


Gilead (GILD), an idea I got from fellow chartist Michael Kahn, is shaping up to a lovely head & shoulders pattern (obviously a favorite of mine, since I keep mentioning this popular pattern):


Chocolate maker Hersheys (HSY) formed a massive head & shoulders pattern. It's not perfect, since the left shoulder is actually a little lower than the right, but we'll let that go.

Invitrogen (IVGN) broke a huge ascending trendline a couple of weeks ago and is kissing the underside of that line:


Kerr McGee (KMG) has benefited from the massive surge in energy prices; to my view, this looks extremely richly priced at this point; notice how lofty it is with respect to the wedge pattern I've drawn.


OMI Corp (OMM) is a very simple rectangular pattern; as with so many of these examples, support has changed into resistance, and the price is beneath it now.


And I must again mention PetsMart (PETM), mainly because this head & shoulders pattern is so large (the only larger one in recent memory is Family Dollar Stores, FDO, mentioned a couple of times in this blog, which continues to founder).



As always, good luck in your trading!

Woof

In a recent posting I mentioned how I "jumped the gun" and shorted symbol LGF since it was in an emerging head & shoulders pattern (but had not broken the neckline yet). As the post states, this paid off (even though one should not typically engage in a position until a pattern is confirmed).

Well, as my fellow technician Britney Spears sings - Whoops, I Did It Again - and I shorted PetSmart (PETM) on the basis of an emerging head & shoulders pattern. Although this is only going to keep encouraging my bad habits, the stock got hammered today, down nearly 10%. Now it has broken the neckline, and this short position is even more attractive than ever.

Recent Performance and a Book Recommendation

I first wanted to see how the recommendations I've been suggesting have been doing. The spreadsheet below shows an average return of over 11%. Not bad for a market that's going nowhere and stock picks that are typically a month old.


I also wanted to suggest a book I finished reading yesterday - Trend Following. You can learn about it on Michael Covel's site. I have no affiliation with the author, but I think it's a terrific read. The web site is pretty interesting as well!

Markets Are Getting More Bearish

This old bear is starting to like what he sees. High-flying retail stocks are collapsing. Soaring energy costs are hampering growth. And all the broad indexes are starting to show real fatique. The past 23 years have been by and large an uninterrupted bull run, and it seems times are changing.

Let's take a look at some recent action among the major indices. What's interesting about each of these (and the examples I'm using are two ETFs, SPY and QQQQ, plus the Dow 30) is their relationship to Fibonacci retracements. All of them touched retracement levels yesterday (August 16) which suggests they will probably pause (or even go up) before piercing these levels to seek lower prices later. Here's the SPY:


And the QQQQ....(for newcomers, remember clicking on any image brings up a much larger image).


Lastly, the Dow 30 Industrials:


If I haven't been clear enough already - - in the coming months and years, I anticipate a bear market that will make 2000-2002 look like a walk in the park. I am looking for thousands of points erased from the Dow. The "turning of the tide" we have been witnessing recently is the last gasp of the recovery in prices we have witnessed from October 2002 into the middle of this year.

Captivating Captiva

Captiva Software (symbol CPTV) is a stock I bought a couple of days ago based on the fact it has broken above a well-formed saucer pattern.


This stock has a lot going for it. Specifically:

• Breakout from a saucer to new highs
  
• Strong, consistent volume during and after the breakout
  
• An ability to "buck the trend" (e.g. it's going up, even today, when the market is down substantially)
  

I like what I see!

Revisiting New Zealand (FOREX)

A couple of weeks ago, I mentioned the attractive short position available with the New Zealand Dollar. I wanted to revisit this, since the price has gone above the "neckline", thus negating the head & shoulders pattern, and bringing into question the value of this position.

Looking at the long term chart, I still believe this is a good chart. A Fibonacci retracement might be a better view into the "turning point" of this, which seems to be at about the .7070 level (highlighted here in green).



This represents the 50% retracement of recent activity. If it continues to plow upward, we'll have to turn our attention elsewhere. But as it stands, this is still an attractive position (although you may be well advised to wait until it's close to the .7070 mark and shows weakness).

Some Favorite Shorts

The market seems to be back into "wait and see" mode as crude oil prices reach never-before-seen levels yet the outlook on the economy remains very optimistic. Some long positions I've suggested - KYPH in particular - continue to do well. I thought I'd mention three short positions I currently have that are favorites of mine right now.

First is Lions Gate Entertainment (LGF). I did something here which is normally not advisable - shorting the stock in anticipation of a pattern. In other words, I saw a head & shoulders pattern forming, and I shorted the stock before the pattern was complete. Sometimes this can work against you, as the stock moves away from the pattern and negates it. In this case, I got lucky, and today's drop in the stock pierces the neckline, thus completing the pattern. Based on this, it still has plenty of downside potential (and thus upside for a short).



Next is Apple Computer (AAPL). This has been a huge winner over the past several years, but I think it's run out of gas. I've got a nice clean stop-loss point marked on this chart in case it violates that descending trendline, thus negating the recommendation.



And lastly, Helmerich & Payne (HP). The vertical ascent of this stock seems to have also run out of steam, and here again we've got a clean, tight stop to minimize risk:

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.

Update on Corning (GLW)

When I first made the recommendation to buy Corning (symbol GLW - see original post), it was at about $15. Take a look at what a good breakout can do! Up 35% in the 10 weeks since then.....