Aug 27, 2010 10:04 AM PDT
Actually, let's take care of a little business first. For those of you who read the newsletter and act on the trade recommendations, you'll know the short/bearish trade on FormFactor Inc. (FORM) has been going well. In fact, it's gone so well, we can and should now take profits.
The key was revisiting a support line around $21.00... the one we first pointed out for FormFactor back on September 16th. Well, between yesterday's low of $20.10 and the current price of $20.99, it's fairly clear that support level is indeed going to hold FORM up.
This ended up being about a 19% move lower from FormFactor, which isn't bad for less than a month's worth of work. Time to move on, as it looks like it's going to make a rebound effort.
And speaking of previous ideas, Spectrum Pharmaceuticals, Inc. (SPPI) did exactly what we expected it to do per yesterday's comments. It just did it a lot faster and a lot more abruptly than we were planning on seeing.
The prompt hasn't changed.... Spectrum Pharmaceuticals was struggling with the ceiling made by a major Fibonacci line at $6.87. If it lingered long enough with no progress, the market was apt to get antsy and send SPPI much lower as they dumped their shares. As it turns out, the market got antsy overnight.
So it tumbled as expected - so what? The "so what" is where it hit a low today... at the other key Fibonacci line (a 61.8% retracement). It's at $4.78, and today's low so far has been $4.82. That's also where Spectrum Pharmaceuticals shares found a floor in June and July, so we're not taking it lightly. If the $4.80-ish area breaks down as well, yikes.
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There's nothing more annoying than a good trade spoiled by a completely disrupted flow. But, it is what it is, and what it is this time around is our bullish call on Sunrise Senior Living Inc. (SRZ) playing out way too fast. It's not what we intended, but you may want to take some off the table if you acted on our breakout notice form yesterday. To be clear, we still love the long-term upside potential that lies in Sunrise Senior Living shares. The stock was trading in the $20's last year, and is (well, was) in the $3's just a few days ago. The move from SRZ above a key resistance line signaled the bullishness to us yesterday, and it looks like the rest of the market was a day late to our party.... Sunrise Senior Living shares are up about 30% today.
We're going to take advantage of the short-term opportunity by selling into their strength, and keeping our powder dry in anticipation of a temporary dip form SRZ. The gap from today is apt to be closed sometime.
Finally, if you're a long-termer on LSI Corporation (LSI), you may want to consider making an exit now while the gettin's good. At first glance the chart looks fine, but a closer inspection reveals the wane in momentum may be an omen of a looming pullback.
The warning for LSI Corporation comes in the form of a bearish MACD crossunder on the weekly chart (the daily MACD is just too volatile, and doesn't capture the 'bigger picture' trends we seek). Considering how well these bearish MACD signals have worked in the past with LSI, this one should be heeded too.
Also marked on the chart are a series of support lines for LSI Corporation. As you can see, they're getting progressively less steep, so the momentum is indeed fading.
It's not always fun or easy to sell a stock that seems to be doing fine. As the old adage goes though, better to sell it too early than sell it too late.
If you'd like to know of any changes in our opinion of LSI, FORM, SRZ, or SPPI (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.
