For those of you who were wondering if we ever officially recommend any of the stocks we review in our non-newsletter articles, the answer is....yep. Both of our picks today - Flotek Industries and FormFactor - have already been featured. Obviously they continued to move in a direction we liked.
Flotek was first discussed exactly a week ago. The stock caught our attention not because it was doing well then, but because it was on the verge of breaking out of a major triangle pattern. We felt the buying volume for FTK at the time made a bullish breakout the higher-odds possibility, and it looks as if that was the case. Flotek Industries shares moved above that resistance line the next day, and have continued to make progress. Volume has stayed strong too. Though FTK is a little overbought right now, that may not slow things down now that the big hurdle has been crossed. And, given the upside versus the downside, even a modest pullback from here wouldn't be significant. Let's go ahead and move in at the current price of $2.48.
It was just yesterday we featured FormFactor as a shorting candidate, so it didn't take long at all for the bearish pattern to fully materialize. Our suggestion was simply to wait for FORM to move under Monday's low of $25.17, which it did today.... in spades. The setup here was a very basic one. FormFactor has been bouncing around - pretty reliably - inside a bullish trading range since March. Each encounter with the upper edge of the zone was followed by a retreat to the lower edge. With FORM just reaching the upper side of the range last week, we knew a dip was likely. Assuming the decline unfolds at the same pace as the prior ones, the stock is likely to find support somewhere around $21.00. That wouldn't be a monster winner, but it wouldn't be bad either, given the minimal risk. If
you're looking for a little something extra, FormFactor has a moderately
liquid options market.
We've only got one exit to make today, though I want to look at three charts.
Let's go ahead and cover this short trade at the market. It's been about five weeks now, and not only has it never been all that profitable, we're slightly back in the red today... the current price of $15.00 is a nickel above our short entry at $14.95. I hate to do that too, as the volume behind the recent rally has been pathetic, and I think American Greeting shares are artificially strong. As the advice goes though, never let a winner turn into a loser. So, we're not. That said, making the decision to cut loose of the AM short is made a little easier by the fact that (1) a key resistance line was broken, and (2) the 50 day moving average line acted as support and a springboard last week.
I was about four hours too early with this bearish/short pick.... seriously. I suggested a short trade on EDAP first thing Friday morning right before the market opened, which ended up being the same day the stock - on no news mind you - decided to blast off at the open. Ugh. It may have worked out in your favor though, since by the time you got the newsletter, EDAP may have been closer to its highs than its lows for the day. Either way (and more importantly), shares seem to have stalled already, and are starting to make lower lows and lower highs. This is still one I'm very tentative on, and I plan to watch it closely until we've either got a profit cushion to work with, or we just need to cut bait.
Though it was a bit of a delayed reaction from our September 2nd entry, Amylin Pharmaceuticals finally took flight this week. The move to the current price of $14.16 is 13% above our entry of $12.53. That wasn't necessarily what I needed to tell you though. While
the whole basis for the timing of that trade was the way AMLN was finding
support - again - at a major trend line, another worthy one has materialized.
For the better part of last week and the latter half of the week before,
horizontal support at $12.41 became evident. I think that would make for
a perfect stop-loss level going forward.
I've always worked hard - perhaps excessively hard - to stay true to a proven, disciplined approach when it comes to my personal investments. I'm a scientist or an actuary in that regard, which is why it pains me to do what I'm about to do.... Though I have no scientific or technical reason to do so, I'm taking on bearish positions today. Most likely I'll buy index put options, though I might decide to step into one of the several inverse/bearish ETFs available. I'll let you know in the blog how I end up playing it. My rationale for bucking the need for a systematic signal isn't complicated, but it is two-fold. First, though I'm a firm believer that the recession as well as the bear market are both over, I think the rally from March through now (one of the best six month periods we've seen in decades) was built more on hype than substance. Hype fades though, with just the slightest hint of trouble.
Yes, once again I'm pounding the VIX (the CBOE Volatility Index) table. The so-called 'fear gauge' hasn't moved lower since mid July, while the overall market has gained more than 6% since then. So what? It's akin to the "do as I say not as I do" dilemma. Stocks are going higher because there are more buyers than sellers, but the stalled VIX says the market's major players are NOT digging in very deep. In the interest of fairness, I said the same thing a couple of weeks ago, and look what it got me. I think this instance could truly be a pivot point though, as the S&P 500 is once again at a key resistance line. It's not an official trade recommendation, and I'm not even entirely sure I want to take the plunge for myself - I may end up missing out on a massive bullish breakout. I suppose this is just my way of saying if you "don't get" the recent rally either, then you're not crazy. And
yes, it's completely at odds with the 'trade what you see, not what you
think' mantra.
Here's what you missed earlier this week if you didn't get a chance to review our community articles... |
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Current Profiles
Flotek
Industries Inc. (FTK) - long/bullish
FormFactor
Inc. (FORM) - short/bearish
American
Greetings Corp. (AM)
EDAP
TMS SA (EDAP)
Amylin
Pharmaceuticals, Inc. (AMLN)
Second,
though the indices have been hitting new multi-month highs of late, telling
us confidence in the market is back, we're not seeing that same confidence
when push comes to shove.
