Though stocks slipped back into the red pretty quickly this morning after disappointing employment news was digested, the market should end the day with a decent gain for the week. I still have my doubts about this week's rally though. The buying volume was never all that strong, and we're still overbought in the bigger picture (a decent correction would do us some good). With that in mind, we're going to stick with our strategy of playing both sides of the market and post a bullish as well as a bearish idea.
I know, I know.... not the most interesting of trading ideas. Never underestimate any company though - I'd rather make a ton of money on a candy company than make a tepid amount of money on a technology stock. Though I don't know if TR is going to actually generate a monster gain, I do know the risk/reward ratio is very light on the risk side of the equation. Anyway, if you don't check out the website on a regular basis, then Tootsie Roll is a new name. For those of you who immerse yourself in SmallCapNetwork.com, you'll already know TR was the bullish trade I almost made in last week's newsletter, for reasons I described in the blog later that day. While the stock still hasn't cracked the resistance between $25.36 and $26.10 (it pulled back from those ceilings, in fact), I can appreciate how Tootsie Roll shares quickly recovered from their dip and are pointed higher again. I've now got more faith that TR will persistently attack those levels in an effort to keep the uptrend alive. As for a target, let's just start with $31.40.
In looking at a daily chart of National Fuel Gas shares, you might just think the stock was going through a volatile consolidation period, which would make sense following the recent runup from $30 to $50. The outlook changes a bit when you have the advantage of looking at a weekly chart, which filters out most of the noise. As you can see, the momentum has shifted from bullish to bearish last week, and this week's lower close (and lower low) confirms it. The signal of this change in direction is evidenced by a bearish MACD crossunder. Considering the size of the downward move we saw from NFG the last time we saw such a signal, we're not going to blow this one off. Is
this a play on falling commodity prices? Somewhat, though after unemployment's
move to 10.2% and with the U.S. dollar hovering at what looks to be a short-term
bottom, that's not a bad thing. Besides, it looks as if National Fuel Gas
is overbought regardless of what oil and gas prices are apt to do next.
I want to clean as much of the slate as I can headed into the last two months of the year, so we've got a lot of business to take care of today in the way of exits. Those instructions have been made clearly (and in bold letters) within each stock's commentary.
When I shorted ALNY back on October 16th I had a pretty good feeling it would be headed considerably lower, though I was a bit surprised by how rapidly it did so. With the current price at $16.02, we're now up about 21% on the bearish trade. More importantly, we're now inside my original target zone, so I suggest closing out this trade and locking in the gain. I do think Alnylam Pharmaceuticals has the potential to move lower, perhaps as low as $15 like I suggested in mid-October. But, at what benefit to us from here? The risk/reward ratio when the stock was at $20.35 was very favorable, while the risk/reward of shooting for that extra point isn't as favorable now that ALNY is so oversold.... particularly in front of a weekend.
If you're still in this long trade from September 23rd, let's go ahead and pull the plug - sell it before the end of the day. I thought Anthracite Capital shares could re-ignite the September rally once its long-term support line was tested again October. But, AHR fell under that line, and hasn't managed to get back above it since then... not even on an intra-day basis. After two weeks, it's time to acknowledge it's probably just not going to happen. Let's move on and put this remaining capital to better use.
Some good news for us on the EDAP front - shares finally broke under those significant support levels a couple of weeks ago. You'll also see on the nearby chart how the stock bounced higher for the better part of this week, but were sent lower again when that falling resistance line was retested. In other words, the downtrend is finally taking hold. One thing to note.... though I didn't plot this on the EDAP chart, there's a Fibonacci retracement line at $3.06. That may have a lot to do with the rebound off the recent low of $2.80. I still think, however, this chart's going to break under that support line on a more permanent basis and make its way closer to $2.00.
It was a good run we had with Citigroup. We bought it back on July 28th when the stock was trading at $2.88. On August 6th when shares hit $3.72 I suggested taking at least partial profits - if not full profits - to lock in a 29% gain for a week and a half's worth of work. I know some of you kept your position, as I kept the trade alive as a recommendation. Good thing too, since C hit a peak of $5.43 a couple of weeks later. Now, however, I think it's time for all of us to officially and completely close this one out. The current price of $4.01 translates into a 39% gain on this piece of the trade. I still feel Citigroup is a great way to play the bigger recovery from the financial sector, but now, the lower highs and lower lows are just too easily made. Quicksilver Inc. (ZQK) - no chart Quicksilver started out so strongly when we jumped in on August 25th, but that strength faded shortly thereafter. At this point, we have little choice but to exit this trade - sell it if you haven't already. ZQK is under yet-another key support level, and I see no effort to get the stock back above it.
It seems like we've owned this stock forever, but we only bought it in May at $5.57. The reason for the entry then was a high-volume breakout move; it was only in the meantime a rising support line developed. That support line, however, was snapped last week. Discipline dictates that we now close out this position. The weekly chart makes it all quite clear - Grupo Simec fell below a major trend line last week when shares hit a low of $7.05. This week, SIM tried to recover, but hit resistance at that level and was pushed lower again. Bigger picture, the bullish volume had been drying up anyway. We can't complain too much though. Even after the pullback, we're still going to lock down a 32% gain. Edwards Lifesciences (EW) - no chart Just a quick note about my concern regarding Edwards Lifesciences back on October 23rd following the surge from $71.10 to $76.04... I'm glad I was wrong. I figured a move like that would only set up a brief wave of profit-taking, but EW never looked back, and has extended the rally to today's new high of 80.35. We're now up about 41% on this January trade, and still going strong. I think
it's important to constantly scoot your stop price up though, especially
now that we have a big profit to protect.
You may have noticed we've added some writers and analysts to our stable of commentators. We're looking forward to learning from their experience and ideas, a handful of which you can check out through these links: |
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Current Profiles
Tootsie
Roll Industries Inc. (TR) - Bullish
National
Fuel Gas Co. (NFG) - Bearish
Alnylam
Pharmaceuticals, Inc. (ALNY)
Anthracite
Capital, Inc. (AHR)
EDAP
TMS SA (EDAP)
Citigroup
(C)
Grupo
Simec S.A.B. de C.V. (SIM)
