WFR is Getting Diced

Reasons to sell WFR:

• broke it's 50 dma for the first time in 6 months on its highest volume ever
• CCI gave a sell signal on this move (fell below 0)
  
• stock has a huge following from momentum traders that may want to exit
• sentiment has changed, WFR was downgraded Friday, earnings did not please
• WFR is falling in the IBD 100, now 39 from 14 last week
  

Take a look at what happened last time WFR broke it's 50 dma after a long uptrend and the CCI crossed over, this occurred last year:

IOTN is in play again after Cramer pumped it 25% in the after hours by speculating that a big contract is on the horizon. Um yeah, like I haven't heard that a thousand times. Monday morning might be a great opportunity to get some 7.50 puts. Just a thought.

Also, CREE formed a perfect reversal candlestick Friday on no news, in fact it was quite bizarre. But it looks ready to resume it's trip to zero.

Disclosure: I own WFR June 55 puts and CREE May 20 puts

No Post Tonight

I've been busy with taxes and a myriad of other things so I don't have a post lined up for tonight. I just want to remind everyone that it is options expiration this Friday, so keep that in mind. I will try and post a few plays for the expiration either Monday or Tuesday. You can also seek me out on the othernet during the day, my user name is pythagoruz. In the meantime, one of my new favorite bloggers Jim Kingsland had a great post on the broader market this weekend. You should check it out.

Update: The market is acting pretty irrational right now and the charts aren't giving me many nice setups. I just cant bring myself to participate in the market right now, in fact it sounds like many traders are getting chopped up. I'm hoping by the end of Wednesday things will clear up and I can find some good setups for Thursday, I will post if and when that happens. -py

Nice Recovery, but Volume Please

On price action the broad market has staged a powerful rally from the March lows. Many market watchers are calling for a resumption of the uptrend and new highs, based on the swiftness of the recovery and the tendency of this market to "shrug off" (ignore) cracks forming in the US economy, a collapsing housing market and a "foreclosure tsunami" (sub-prime and more recently alt-A lending meltdown). It all smells like a roast, the amateur shorts are getting their clocks cleaned on this rally from the lows, the newbie funds are getting suckered into buying this rally and joe schmoe is being told that the glitch is now over, "time to buy again". Call me a conspiracy theorist if you want, but I don't buy this rally. The chartist in me says, ok well the chart is pretty bullish aside from the volume. On the DIA (dow jones) weekly chart this run looks like a text book bear flag on the linearly declining weekly volume, but one cannot deny the strongly upward price action:
On the other hand my gut continues to tell me this market is toasted and in for a long and potentially steep decline. I especially like shorts in the banking sector, companies like DSL, FED, CCRT, COF, BKUNA and even the higher tier firms like GS, MS and BSC. Also, retail is set to do a major face plant soon, I like GES, COH, CHS and NKE among other shorts. If you feel the itch to get long, betweenthebars found a great one in the silver miner SLW and I think he also recommends the health care company CELG. The biotechnology sector has been a strong performer lately and we may be in the midst of a baby boomer health care rally. IMCL, GILD and MRK have nice charts in that area. But I would be very defensive in nature on any long since in my view little stands in the way of another "glitch" day.

BOT Update

What looked too good to be true last weekend really was. BOT reversed out of gapfill mode around mid day on Monday and has driffed higher since. But $190 has proven to be resistance albeit weak, so I would exit any remaining short positions in BOT there. I should have been more clear about a stop last weekend, which should have been set at the top of the gap, $185. I made the mistake of not setting the stop myself and am still holding. I think there is still a decent chance of BOT heading back below $185 at which point I would want to be very short. Targets on short positions are circled in blue. Please click on the chart above.

Beautiful BOT gapfill in progress

Fundamentals aside, this is a chart I would want to be heavily short right now. BOT closed Friday at is low of the day, which sets the upper end of a range of prices that BOT has never traded at before. The announcement by ICE a few weeks ago of their interest in merging with BOT sent the shares to new highs leaving behind a $20 gap from $165 to $185. Had this not occurred during a market meltdown and more importantly a CME and ICE meltdown the BOT gap may have held, but selling ensued and BOT has been filling the gap on high volume ever since $185 broke last Thursday. Kudos to ChicagoStock for bringing this trade to my attention and calling the $185 break early last week. I would expect BOT to reach the previous $176.89 high in no time, but maybe pause there as the range of never traded prices would be filled. The 50 dma should be at least tested (at $173.74 now) and eventually the compete gap filled (~$167). The only risk here is that a full scale bidding war ensues with ICE and CME raising their offers. I wouldn't expect this to happen but if it did you can bet both CME and ICE shares would sell off pretty hard and in both cases the offers are for almost all stock. In other words BOT should trade somewhat with ICE and CME. In fact, until recently BOT shares traded proportionally with CME as that merger was thought to be a done deal, although they have diverged as of late.

Disclosure: I own BOT puts.