Tuesday, May 29, 2012
Below is a long term chart of the stock. Note how TOL has been trading in a range for the last five years. Last week, the stock broke out of that range to the upside on good relative strength and volume. Next major resistance is coming up around $35, which is about 20% higher than current price. I think that's where we're heading this year:
The daily chart shows that bears are running out of steam: the stock declined 10% during the last six weeks, but each selling wave was accompanied by less volume. On the other side, upside volume seems to have picked up recently: bulls are getting stronger, so I'm happy to join them. In addition, relative strength vs. the S&P 500 improved in recent weeks:
In order to find a good entry, I look at the intraday chart. CMG seems to be in a transition process from downtrend to sideways/uptrend. Two possible scenarios here: A) price breaks resistance around $410, so I would buy the intraday breakout with a stop around 400. Scenario B assumes further weakness and CMG becomes a buy on strong rebound from support around $390:
Fundamentally, the stock seems expensive, which others obviously have already figured out: CMG is heavily shorted with 16% of float held short. Analysts are neutral: only 14 of 27 analysts rate the stock a "buy", which is good since it leaves room for upgrades. The combination of high short interest with neutral analyst rating has no negative implications according to this piece of quantitative research.
Thursday, May 24, 2012
Disclosure: Covestor model is NOT long AAPL yet, but I'm planning to buy soon.
Wednesday, May 23, 2012
Monday, May 21, 2012
Looking back into recent market history gives us some guidance on how to trade such a bounce, if one really wants to be aggressive: the last time markets sold off was around August 2011:
On August 9, the S&P 500 recorded a "single day reversal" on high volume. Buying on the close of that day would not have been a good trade because stock rallied just 2% after the reversal, but the downside of the trade at 5% (assuming stop at low of the day) resulted in more risk than potential gain.
A better approach would have been to either start scaling into the long position during the selloff when RSI (2) was still below 10 or wait for the re-test of support on August 10. Also, one needed to sell as soon as momentum declined four days after the reversal.
The other question is what to trade. Since correlations tend to be high during major selloffs, trading individual stocks is often not necessary and a analyzing them a waste of time. Usually, the weakest sector gains the most during the rally. Since the Euro has been the driving force behind recent declines, one wants to buy sectors, which are highly correlated to that currency, which are Energy and Basic Materials. Here is how the later performed during the 2011 decline:
Note how XLB outperformed after August 9 and gained 10% from the August 8 low but underperformed during the decline.
Here is the same chart for Basic Materials, but for April/May 2012. Conditions look similar, so it might be worth to look into the trade using a leveraged ETF such as UYM:
Saturday, May 12, 2012
At the end of the Financial Crisis in 2009 however, stocks kept declining after high put/call ratio readings. So the indicator had a win rate of 5/6= 83% in the last three years:
Friday, May 11, 2012
Have you recently looked at the charts of e.g SPG, TOL, DIS or or ALL? They are looking great! Very clean up-trends, low volatility. Did somebody forget to tell them that it's cooking in Europe? In addition, the S&P 500 refuses to break below 1340 and the VIX remains at modest levels despite all the negative macro news.
There are two options: we are actually seeing some underlying market strength or investors are incredibly complacent and ignore Greece, which could be extremely bearish. If Greece would indeed fail, the unexpected would hit wrong positioned investors on the wrong foot.
Frankly, I do not know, which position to take. There are arguments for both sides, so I play it from the technical standpoint as usual : buying the strong stocks while shorting the junk, keeping positions light with high cash levels.
The intraday charts of major indices look horrible BTW, but that's another post.
Disclosure: Covestor Model is long SPG & TOL
Thursday, May 10, 2012
Yesterday, I went long MEA, a small cap stock of a company in the metal recycling business. If you look at MEA's chart and know my philosophy, you will notice that this position is not my typical swing trade. Here's the idea behind the move:
There is guy whose financial podcast I'm listening quite frequently: Frank Curzio, a small cap value guy and publisher of a monthly newsletter, which is the only such product I have subscribed to by the way. Frank is doing a lot of fundamental research on the companies he recommends. My idea was to use his fundamental picks and trade them using some parts of technical strategy. MEA was one of his recent picks.
The stock has been hitting $3, which is a long term support level for the stock. I'm trading the bounce from that level, even though MEA is trending down. Volume action has been positive in recent weeks, which supports the thesis that sellers are exhausted in the shorts term. The position is fairly small to compensate for the risk of the highly volatile stock.
Wednesday, May 9, 2012
The longer term picture looks even worse. Silver has been building a top for the last 1.5 years and a potential breakdown from the $26 level could result in a move to $20.
It is likely that some demand will come in after the initial drop, so I expect some choppy action once Silver hits $26. A rebound could become a good opportunity to load up on the short side in the next months.
Disclosure: Covestor Model Portfolio is short SLV.
Monday, May 7, 2012
A potential price target in case the Euro breaks support would be around $1.24.
The currency traded below 1.30 this morning but managed to bounce back above that level. The intraday chart will tell us today, how strong Euro bulls really are. The fight for 1.30 will go on for while, so keep this one on top of your watchlist:
Since the Euro has been a acting as a "risk on/risk off" indicator recently, its direction will be telling for various global markets.
Thursday, May 3, 2012
Tuesday, May 1, 2012
I'm contemplating going long Gold at this point and might start to put up an initial position this week with a tight stop below $1,600.