Sunday, November 26, 2006

Three Breakout Setups: BBY, CHS & MEE

Well it looks like we got the strongest black friday in years and retail should be strong next week, that includes EBAY btw. I think those dec RTH 100 calls are still a good play on that strength, or just buy Best Buy (BBY). BBY looks like it could easily complete a long term cup with handle soon, the trigger is a close above 58$. Check out this weekly chart, the cup n' handle breakout is one of the most profitable patterns out there:
Fundamentally, I think this will be a very good season for Best Buy for a few reasons. Obviously there is a big buzz around the game industry right now and they seem to have cornered the nintendo wii market. I tried to get a wii at my local best buy last week and today. They had 100 on the launch and 70 this morning on the second shipment. Since I didn't camp out I was not able to pick one up on either occasion like many many others even though i was there before the store opened. I did however end up buying a bunch of dvd's for x-mas presents... This compares with my local GME. They had twelve wii's on the launch day and one, yes one on the second shipment. Plus the whole issue surrounding used games that i keep talking about with GME doesn't exist with BBY. Another reason is this new best buy rewards program they have going this year. I am a memeber and without going into details let me just say that I think it will be very effective in gaining market share this year.
Another possible play this week on retail is Chicos, CHS. They report earnings after the close on tuesday, so like JWN wait until wednesday morning to jump in if they impress. The chart is set up for a nice breakout if it can move above 25$ on this report. So I would buy the 25$ dec or jan calls on wednesday morning about 15 min after the open if it gaps up and moves over 25. Oh and by the way, congrats to those who took my advice on JWN. That stock moved as expected and made new all time highs in the lower 50's last week after reporting. Here's a fun fact, Nordstroms's (JWN) only has two sales a year and neither occurs duing the holidays. They get the surge in shoppers on black friday like all the other retailers, but they don't have to pay for it with major discounts. That is one well run company, imo.

I also still like ADM long for a swing trade, it seems to have found support. That stock will move like Deere (DE) once people realize they are profiting off the corn spike as well (why DE has been so strong). Also, here is a random energy stock chart that I like alot, especially if we get a move in oil (which I have been expecting). The buy trigger on MEE is 26, as close above this price will complete a perfect inverted head and shoulders:
Remember, if you miss the breakout look for a throwback to the breakout price intraday or in the following weeks. The odds of getting a throwback depends on the pattern, statistics can be found in the links above. Don't chase a stock that you have clearly missed the boat on. Good luck, and congrats on those ENR profits! -pyth

Saturday, November 18, 2006

Ride the Retail Train

To follow-up on indigo's post last week I'd like to think about a few ideas for the holiday rally. First of all we are in a very strong market heading into the santa claus rally time frame. It is widely expceted that consumers will be eager to spend spend spend this christmas in celebration of lower gas prices (lower than 6 months ago) and higher wages (yoy). How will they spend their money?In the the retail apparel sector I like JWN and they post earnings monday after the close. They will undoubtably beat expectations and raise guidence as they always do. JWN is the best retailer and I speak from experience, if you have ever been in one you know what I'm talking about. That being said, the premium on the calls is too high to try and buy them ahead of earnings and why take the risk? I would recomend buying JWN (calls) at the open tuesday assuming the numbers are good enough to get JWN over $49 as a close above this price would make way for the next leg by completing the bull flag. The chart (above) couldn't be more bullish, pull up a weekly if you like the daily.
For a more conservative play on a booming season for retail buy dec or jan RTH 100 calls. RTH is the retail index etf that includes names like best buy (my fav), home depot and also clothing retailers. While the etf has not been able to hold above 100 on recent moves into this new territory, it looks poised to call par ($100) support soon.

The video game industry is in the midst of a boom phase in that cylce with three new consoles on the market this christmas. Unfortunately, Sony (SNE) had manufacturing problems, Microsoft (MSFT) sucks and Nintendo is only traded on the japanese exchanges. As I mentioned a few months back I don't like the brick and morter game shops because the new consoles enable players to download old games online rather than buy the used ones stuck in GMR's inventory. But what about ebay? For one thing they will benefit from the fact that the new nintendo system and the playstation both play games from older systems (used games). Then theres the half of all those people waiting in lines to get the sold out consoles that put theirs up for sale online for double, triple or in some cases much more on their money. It might be interesting to find out what the turn over rate is on consoles as ebayers try to flip consoles online at the peak demand closer to christmas. This is just one reason I like ebay, indigo pointed out a few of the others last week so see his post. The stock broke out of that ascending triangle and has plenty of room to run. I will be taking at least some profits on my calls around 37.50, the declining trendline from previous highs.
I will try to update the post during the week with links. Happy trading! -pyth

Tuesday, November 14, 2006

EBAY, preparing for lift-off?

As we approach the Christmas shopping season I like to look over the specialties retail plays, internets in particular, for chart positions that I like. AMZN and EBAY are the two that always come to mind. AMZN had it's pop after earnings so I've turned my attention to EBAY.

The short term chart is an ascending triangle that is displaying some obvious intra-day buying. Those upper candle wicks are a sign of buyers that are being sold to, so I went looking for the sellers. I found some of them among the November calls that expire this Friday. This is the maxpain effect at work. As there is no corresponding open interest among the puts, the closing of these calls is acting as an anchor on the stock price.
In my opinion, this ascending triangle couldn't be better formed. It will be broken, and soon, one way or the other. If the call trading takes the stock to $30, the maxpain point for November, the triangle will be broken to the down side. If this solid buying continues, we'll break out to the upside as early as monday, after the options related trading subsides.

With Christmas shopping just around the corner I am sure that EBAY will be doing all they can to provide press releases on their listings and transaction numbers so I'm taking the slightly longer trade. I bought the December $35 calls today at 50 cents.

Update: As of Saturday, November 18 this stock has broken out to the upside of the ascending triangle and held above the previous resistance. Late Friday trading was generally positive and the stock touched $34 in after hours trading on reasonable after hours volume.

I'm excited about the prospects for the stock, come Monday.

Sunday, November 12, 2006

Alternative Energy, I like PBW and ADM

I have been bullish on oil since USO apeared to bottom a few weeks ago. That hasn't changed and in fact many oil stocks have clearly bottomed and are moving up quite well. As you would expect, alternative enrgy stocks have mirrored this move to some degree but most of those stocks corrected very harshly after huge gains early this year. There is so much technical damage that ethanol stocks, for example, still trade below their 200 dma and some like ADM even trade below their 50 dma's. I think that this underperformance has provided a great opportunity in that sector especially in light of the democrat's return to power in the house and senate. While we shouldn't necissarily expect legislation to change dramatically we can expect the buzz around alternative energy to grow as the lawmakers hold hearings and complain on tv. I thought these top ten predictions on the impact of the elections were intertesting and probably correct. The first being that energy will go back up. For a great screen of ethanol, solar and all other energy stocks look here.
In the sector I like the alternative energy etf PBW, seen in the first chart above. Any move above 18 would complete the head and shoulders bottom and set up a run to the highs around 24. However, watch for false breakouts as this has happened twice recently. I wouldn't worry so much about this though because these breakouts occured while oil was in free fall, the USO plot is included for a comparison. PBW is nice because it is diversified among various alternative enrgy areas with an emphasis on solar which has been strong lately. I also like Archer Daniels Midland Co. (ADM) which has been getting reamed lately due to a spike in corn prices (which they actually are hedged against). ADM is making a killing off the ethanol boom as they are the leader in this sector. Higher corn prices are bad for their ethanol business but since they are also into corn processing and other agricultural services like storage and transportation they are well hedged and if fact should profit from an increase in corn prices. The chart (above) looks pretty bad, and if ADM was not such a solid company at a booming time for them I would have a hard time pulling the trigger. The ethanol sector is hot right now, and ADM is too cheap to not buy.

disclosure: I have ADM calls.

Sunday, November 05, 2006

ENR is Out of Juice (luckily its downhill from here)

Energizer was a stock that kept on going and going... but no battery lasts for ever. ENR got into one of those grooves every long craves, a parabolic price increase. After moving out of a less steep uptrend at the end of July on yet another earnings beat ENR acclerated upwards. The stock attempted to top a few times but the dow's strength gave it's sails wind and ENR squeezed higher.
ENR remained overbought from the begining of September until last week when it topped just over $80 then reported a horrible quarter in which they saw profit fall 25% over last year, while revenue increased only 5%. For the year they showed a decline of 7% profit, in otherwords they are not exactly experiencing the robust growth (30% in the month up to earnings) that the stock price had been suggesting. Furthermore, ENR made an appearance in the upper IBD 100 for three weeks but came off this weekend and Morgan Stanley initiated with a sell rating last week before earnings. As mentioned a few weeks ago, I have been watching ENR and waiting for the trend to end before entering shorts (puts in my case). Well the time has come, my first target is weak support at $70 then there is some very strong suport on a rising trendline that had been resistance that currently lies around $65. Then beyond that the 200 dma should be very strong support currently at just under $60. This is one of the best looking shorts I have seen in a while with a close just below it's 50 dma on friday with heavy volume, ENR should be getting sold all week long. Here's a weekly 2.5 year chart to give you a feel for how ENR has behaved in the past, it also suggests $65 is a good target.
In addition I still like the energy sector and am holding some HAL calls. Many energy stocks have great charts and look ready to breakout like XTO or already have like CVX. However there are some quality names that have yet to recover that are looking very attractive like ADM and LNG. Also, keep an eye on the gold and mining stocks, they seem to have begun a new uptrend, I still like GG.

Disclosure: I have HAL calls and ENR puts. Email me if you want to know which contracts.