Aug 27, 2010 10:04 AM PDT
It was fun while it lasted, but the party may already be over for VeriChip Corporation (CHIP). After a one-day breakout on the 21st, shares have stalled, forming a wedge shape in the process. That triangle may be infinitely important regarding where this stock goes next. Our expectation is unfortunately a bearish one. Between the gap left behind on the 21st and the fading volume on the 22nd despite the way VeriChip continued to climb that day just suggests there's not enough reaming interest. In the flip side, the volume behind the slight dips on the 23rd and 24th was very light... so not all hope is lost.
The key to a CHIP trade in either direction really hinges on the wedge shape. Whichever side breaks first (and the bulls seem to have the edge today) will be the higher-odds trade. Be patient though.
The breakdown we've seen from Spectrum Pharmaceuticals, Inc. (SPPI) isn't a complicated one. A rising support line that's been in place since April (and tested three times since then) started to crumble last week, and totally fell apart this week. The selling volume has been getting progressively stronger as well.
At the same time, Spectrum Pharmaceuticals' first Fibonacci retracement line at $6.77 was also snapped by today's low of $6.35. Between those two support lines' failures, SPPI has some room to fall.
The first - and most likely - landing spot is going to be $4.75. That's the next Fibonacci line for Spectrum Pharmaceuticals, but it's also where you'll find the low and reversal point from July. A move there would be a decent short trade for SPPI, though it would be an even better breakdown if that support level failed. Don't get greedy or presumptuous though - play it be ear once we're there.
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Though it found support there for nearly two months, a key support line for Convergys Corporation (CVG) finally cracked yesterday. If this breakdown is anything like recent ones, it could be more than just a little trouble.
There are several lines on the CVG chart... one is resistance, while the other three are support. The only ones we're interested in at this point though are the two lowest support lines around $8.22 and $8.60. Those two are the most likely landing spots for Convergys shares.... a 20% or so tumble from current levels.
Note the support around $8.60 now is rising every day, but the support at $8.22 is horizontal support for Convergys. That's where the stock bottomed in July when the last pullback was reversed.
Either way, the breakdown of support seen in August and this month is a very decisive move lower.
Finally, Shiner International, Inc. (BEST) is literally at the very tip of what should end up being a bearish wedge. Following a huge rally to a high of $2.25 on the 17th, we've seen nothing but lower highs for the stock. We've not really seen lower lows though... just horizontal support at $1.24. Thus, the triangle shape. Technically speaking then, BEST hasn't made a breakdown yet - it's only on the verge. Between the excessive run up from a week ago, and the lower highs, the high-odds move here is indeed a move lower for Shiner International shares.
On the off chance that BEST is itching to rally again though, the smart thing to do is wait for the stock to move under $1.22 before shorting it (if you're so inclined). Considering there's a base around $0.90 though, this may be more of a warning for any potential buyers than it is a suggestion for anybody looking for a short trade.
If you'd like to know of any changes in our opinion of SPPI, CHIP, CVG, and BEST (or if we officially recommend them as trades), be sure to sign up for our free newsletter today. It's delivered 2 to 3 times per week.
