Another surprisingly strong week so far from Wall Street has left another batch of good-looking trading ideas for us to review today. Though we hate to limit ourselves to just two, we're bullish on Leap Wireless (LEAP), and bearish on EDAP TMS (EDAP).
We first mentioned Leap Wireless International as a possible trading idea in a technical outlook commentary from September 4th. Obviously the stock has continued to move in a direction we like. This is actually a straight-forward analysis; LEAP is making higher highs, and the moves higher are being made on rising volume. Sometimes, it really is that simple. That said, there's a lot of other evidence in support of the stock's upside potential. Our two biggest attractions were where the reversal was made, and how sharp the plunge was that came right before the rebound. August's low in the upper $15 area is in line with last November's low, forming something of a horizontal double-bottom. Better still, LEAP was more than cut in half after peaking around $40 in May. The tumble was excessive, and the rebound could be just as sharp. By the way, it doesn't hurt our odds that Leap Wireless is expected to be acquired within the foreseeable future.
If the name rings a bell, it's because EDAP TMS was another stock we mentioned recently as a possible trading idea. It was first discussed in a September 8th analysis. At the time, EDAP was headed into the pointed end of a wedge shape, but had not yet hinted as to which side of the shrinking trading range was going to crack first. Since then, we can see it was the support side that snapped. It wasn't a big surprise really - the massive surge from August 19th saw no bullish follow-through whatsoever. It's still a bit of an aggressive play, aside from the fact that it's a short trade. But, considering how far EDAP TMS shares could tumble if the last bastion of support around $3.69 cracks, the risk is commensurate with the reward. We're
going to go ahead and pull the trigger on the bearish call, but be sure
to also keep a tight stop in place - perhaps at the falling resistance
line (which has been a factor for several days now).
As for our open trades, most of them are going our way... some more than others. One of them, however, just needs to be shed so we can move on to more productive charts. Here's a quick overview of the highlights and exits that need to be made.
This thing's been all over the map since our August 25th entry of $2.36. But, at $2.61 we're up about 10%, so I guess we can't complain. More importantly, ZQK appears to be headed higher again after August's excessive surge was reeled in to a low of $2.23. All the volatility did us a small favor too - we now have something of a support line to watch going forward; it's marked on the nearby chart. That support level happens to run parallel with a resistance line currently at $5.00. It may not be deserved just yet, but Quicksilver shares could possibly run all the way up to that ceiling. That would be a stretch, but it's nothing the stock hasn't done before. The only worry here is the lack of buyers/volume for ZQK with this recent rebound.
I went bearish (short) on ENOC in the August 12th edition, at $26.00. Though the stock's been flat or up since then (and I've grown irritated by it), I still think this is one short trade we should stick with.... though it's on notice. The key here is the ceiling around $31.30. That's where the big selloff started last month, but more importantly, that was Thursday's high and a trigger for a major downside reversal. For those of you who know and use candlestick analysis, you'll appreciate how EnerNOC shares made a tall doji bar on Thursday after a decent push higher for the prior six days. It's not the pinnacle of reversal patterns, but a relatively meaningful clue considering it occurred right when the ceiling near $31.30 was attacked again. So, the plan here is simple - we'll remain patient with ENOC as long as the resistance just above $30 holds the stock down.
Let's just go ahead and cut loose of this trade - if you're an owner of Western Alliance Bancorporation because of our recommendation, we now recommended you sell it and put the proceeds to better use. It's not it's been a poor performer or a particularly nasty loser. It's just that after a month of no progress, we're crossing the line from confidence to stubbornness. It's only about a 5.5% loss... a pittance by most standards. That said, it was much easier to cut bait after seeing how WAL shares have been testing support at $6.65. It's better to be out before that line cracks, because once it does, the dip could accelerate quite a bit.
I thought it was important to show you this chart of RealNetworks, though I can't quite put my finger on why. I suppose it's because I see so much to like while I simultaneously see so much to not like. The good part is that RNWK jumped that resistance line we've been discussing for a while thanks to Thursday's 7% pop. Each time RNWK moves above that ceiling, the easier it is to stay up there. The parts that scare me are the gap, and the way RealNetworks shares fell back from their intra-day highs to close near the low for the day. It doesn't exactly scream that the stock's going to the moon. I suppose that's the long way of saying RNWK is hardly on solid ground yet.
This may just be trader-paranoia, but I'm a little concerned by the way WebMD shares have been making lower highs. It's not a giant deal yet - the trade's still up about 12% for us, and the long-term support line is still intact. It's just something to be aware of. Almost needless to say, a closing price above that new resistance line would alleviate all worries, while a close under the lower line would be a prompt to make an exit of the long WBMD trade. A couple of other things to address that don't deserve a chart.... Remember the big spill that NCI Building Systems Inc. (NCS) shares took a couple of days after we went long? Yeah, well, the stock's back in the hunt. We're still in the hole from our entry at $4.10, but Thursday's close of $3.51 is much more tolerable than the low of $2.10 from the 27th. Patience. Our
Thor Industries Inc. (THO) short trade is on its last leg for us as
well. Like EnerNOC, it recently hit a ceiling that could jump start another
wave of selling, but if THO manages to crack through resistance at $27.90,
just go ahead and cut bait.
That's it for today - have a great weekend. We'll post some market-specific thoughts early next week. In the meantime, here's what you missed from the community pages:
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Current Profiles
Leap
Wireless International Inc. (LEAP) - bullish/long
EDAP
TMS SA (EDAP) - bearish/short
Quicksilver
Inc. (ZQK)
EnerNOC,
Inc. (ENOC)
Western
Alliance Bancorporation (WAL)
RealNetworks
Inc. (RNWK)
WebMD
Health Corp. (WBMD)
