It looks like Rambus, Inc.(NasdaqGS: RMBS) might be close to squeezing some shorts based on the recent price action. With over 11% of the float being short, and a history of quick powerful moves, this is a situation that bears watching. Overall, RMBS cleared a 6 month long base in December, and has been trading in a wide range since then. It seems every time RMBS manages to rally into the $25.50-$26.00 range, it is met with an onslaught of profit taking or short selling. It then falls back towards the original breakout area near $20, where there is no shortage of buyers.
It looked like RMBS was in the process of forming a double top over the first three months of this year. It had a weak bounce in February that only managed to reach the 50-day moving average near $23 where it began to rollover. It looked like RMBS would head back down to test the $20 area again, only this time with momentum on the side of the sellers. However, RMBS didn't breakdown. It began trading sideways until surging past the small consolidation near $23 possibly trapping some early bears. This move was also accompanied by a surge in volume. While RMBS still has plenty of overhead resistance, this move could be helped by a short squeeze if indeed this is a failed topping pattern. It looks like a retest of $26 is in the works as long as RMBS can hold above $22.50-$23 in the immediate future.
With the long history of surprise news due to the ongoing patent litigation in RMBS, traders may wish to look at options for protection or even as a substitute for common shares. Overall the pattern looks very constructive, but there is always a chance of an unseen news event in this stock.
Good Trading,
Joey
I wrote an article on Wednesday night for Investopedia on Gold Miners and how they are at a critical juncture right now. In the article, I highlighted a few stocks to watch, but found another one today that I hadn't traded before. It looks pretty decent on the daily chart and has had good relative strength when compared to the other miners. Before revealing the chart, here is the introduction to the article along with the link for anyone interested.
With the recent strength in the U.S. dollar, gold and the companies that mine it have been mired in a correction. While these stocks have been correcting their move to recovery highs since late last fall, from a broader perspective it's clear that these stocks have technically been in a wide-trading range. The mining stocks recently tested the bottom of the range and turned higher, hinting that an end to the correction could be near. Currently, the gold miners are in a critical area on their charts, with a break above near-term resistance hinting at a resumption of the uptrend, and a move lower hinting at a larger topping process.
The additional stock I found is Allied Nevada Gold Corp. (Public, AMEX:ANV). While the price action in ANV is very similar to some of the others highlighted in that article, I like that it is close to an all time high. ANV also rallied a little longer than the other miners, carrying over into the New Year rather than topping out in November.
ANV has been correcting the past rally much like the other miners, with the consolidation taking place in a much larger lateral trading range. ANV has held the low $12's on a few occasions and that is a clear support level. ANV is currently in the middle of the trading range, but the recent move above $14.50 is a positive for it. This was an a level of importance as shown by a few turning points in the stock at this level. It appears that ANV is headed for a retest of the recent highs after this move. It may be emerging as one of the leaders in this group from a price performance perspective and I will be adding it to my watchlist.
Good Trading,
Joey
Stock Chart Analysis ILMN
Illumina, Inc. (Public, NASDAQ:ILMN)
I've been watching ILMN for a few weeks after it had a huge move late in 2009 and into early this year. ILMN was able to rally from the mid $20's to the $40's in less than a month. Interestingly, the rally halted immediately as it almost filled a bearish gap from late October. While it was disappointing that ILMN couldn't follow through with a break to new highs, the action after that rally has been healthy. ILMN has been consolidating in a fairly tight 5 point range since then and appears to be holding the 200-day moving average as support. ILMN may be on the way to retest the $40 level, as buyers have been consistently stepping in at the bottom of this range. While that would be a decent trade from these levels, it would get really interesting if ILMN cleared the $41 level. If that occurred, it would not be a surprise if it squeezed some shorts and rallied to new all time highs. Currently, that all time high is just above $47. A close below $35 would be a sign of weakness and a likely time to reconsider.
Good Trading,
Joey
Stock Chart Analysis ZION
Zions Bancorporation (Public, NASDAQ:ZION)
I've mentioned before how ZION was one of my go to stocks on the short side during the financial crisis. For whatever reason I had a good feel for it and it was more volatile than some of the other bank stocks. Over the past year though, ZION has been gradually transitioning the way it behaves as a stock. While ZION is certainly still quite volatile, it has halted its precipitous decline and entered into a lengthy consolidation. In fact, it has had some fantastic rallies over the past year, even as it has been forming a much larger trading range.
Stepping back and looking at the past years daily chart, you can see that ZION has been consolidating in a huge triangle. ZION has been gradually finding buyers at higher levels, but it can't seem to clear the hurdle just above $20 a share. Some of the regional banks have been performing really well lately, and its interesting that ZION hasn't really corrected that steeply during the recent pullback. While a 10% drop is nothing to sneeze at, it is small when compared to the typical swing in the stock, and ZION is still well above the 50-day moving average. ZION is worth watching moving forward, as it could really get going on a breakout above $20. While it may not be best of breed or a sexy Chinese stock, it has proven time over time that it can move quickly in a short time frame.
Good Trading,
Joey
Part of my weekly trading preparation involves reviewing where the indexes are in relation to nearby support and resistance levels, and forming at least an initial bias for the beginning of the trading week. Traders should always plan for multiple scenarios, as the worst thing you can do is try to scramble and chase a trading opportunity in the heat of battle.
The markets have staged a decent bounce off the early February lows, and most actually reclaimed their 50-day moving averages. There are also several individual stocks acting well, trading laterally and building a base as the markets corrected. While the recent action has certainly been constructive, traders should not get too complacent here. The markets transitioned to a range bound environment with the sharp drop in January and the high volume reversal a month later. While they have held support thus far, the markets are back into an area which could have excess supply. Because of this, my plan is to manage my existing positions, and simply watch to see what happens as the indexes test these resistance levels. There are plenty of stocks setting up, but if the markets do come under pressure over the next week or two, it will take down many stocks with it. However, if the markets trade sideways here on light volume, it could setup for a good opportunity in a week or two for continued strength. I have been adding stocks to both a long list and a short list, in order to be ready when the opportunity presents itself regardless of which direction the next move takes. One of the stocks I added to my long watch list is Gildan Activewear Inc. (USA) (Public, NYSE:GIL).
GIL broke out of a base in December on huge volume, and rallied into the $25 range. It pulled back to the original breakout area over the next two months and held support near its 50-day moving average. It bounced off this level and retested the $25 range fairly quickly. Volume increased on this move, and showed buyers starting to get more aggressive. GIL is currently drifting under the important level of $25 on decreasing volume. This is constructive action as sellers are not getting aggressive or showing any urgency. In my opinion, the ideal scenario here would be for GIL to drift back towards its 20 and 50-day moving averages as the markets consolidate. However, the break of $25 is another possibility depending on how the markets trade over the next week or two. While the low $21's would be the major support level here, I would probably not hold or trade this stock with a close under its 50-day moving average.
Good Trading,
Joey
I am posting four charts below of stocks that have withstood the recent correction with little technical damage. None of these stocks dropped below their 50-day moving averages and are worth watching if the markets continue to firm up. I wrote about these stocks last night in an article for Investopedia, but due to space constraints I couldn't post the larger charts I have here. Here is the introduction to the article followed by a link to the rest. The larger sized charts follow below the paragraph.
After the recent pullback, it has become even more important for traders to focus their attention on stocks that have been able to build sound bases. A base comes from a healthy consolidation, and is often an important prerequisite for a stock emerging into a new sustainable trend. A sound base often takes time to develop, and quick or choppy bases often result in failed moves as there are still many participants from the prior trend anxious to take their profits. Once a stock emerges from a healthy consolidation, the base will usually serve as a strong support or resistance level because that area is filled with other traders who missed the breakout and are anxious to avoid missing a second opportunity.
Citrix Systems, Inc. (Public, NASDAQ:CTXS)
Mead Johnson Nutrition CO (Public, NYSE:MJN)
Mindray Medical International Limited (Public, NYSE:MR)
Green Mountain Coffee Roasters Inc. (Public, NASDAQ:GMCR)
Good Trading,
Joey
I'm loving the "Talk Your Book" show on Stocktwits TV for so many reasons. While obviously many people shares their trades on the Stocktwits stream, its very difficult to go through your thought process in 140 characters. The stream also doesn't lend itself as well to swing trades because of the time difference between entry and exit. I think this show hits a sweet spot because it provides insight into the thought process behind a trade, but also keeps it short enough to keep it interesting. Great Job Stocktwits Braintrust!
If you missed the segment, you can view it in the embedded video. If you already saw it, feel free to skip to the charts below.
In this post I will go over the charts for my first two "Talk your Book" segments. I put these up because it's hard to look through the chart in a low resolution video and I can also expand on some thoughts I didn't have time for in the video.
The first segment was on Southwest Airlines Co. (NYSE:LUV) and one where I thought I would be stopped out after the markets were getting whacked around last week. It managed to hold and is looking much better now.
LUV broke out of a base in December and has been consolidating above the base since then. It has been trading in a very tight channel as volatility dies down. The 50-day moving average has risen to meet the bottom of the channel, and in fact coincided with the bounce off the bottom of the channel a few days ago. One of the reason I like this setup is due to the outstanding relative strength in this stock and in many Airlines in general. LUV held above the breakout recently, despite general market weakness. LUV is currently testing the top of the channel and actually tagged a new 52 week high today. It also had a new closing high and could be close to ending the recent consolidation.
The next video was for a short setup in Trina Solar Ltd. (NYSE:TSL). TSL is actually a stock that I have liked historically, and has been one of the strongest Solar stocks over the past year which may sound counter intuitive. However, I like the chart setup and even the best companies undergo corrections. TSL has been marching higher for the past year, rising from under $3.00 a share last March to over $30 a few weeks ago. It had a sharp move lower off that high, slicing through its 20 and 50-day moving averages. This downwards thrust has the markings of an impulse move. Typically a stock will move in an impulsive move with the underlying trend, and then "drift" in a counter trend corrective move. If you look at TSL on the way up, you will see a series of impulsive moves higher, and then corrective moves lower. The thought process here was that TSL has at least one more impulsive move lower to complete an "ABC" correction. The stop is just above the recent bear flag.
If you have any questions or comments on these trades feel free to share them in the comments section.
Good Trading,
Joey
