Summer Trades

I'll be leaving for a two week vacation tomorrow so I've been looking for easy trades that require little attention. Today I want to let you in one of my favorite longs and my favorite short that fall in this category.


I've been following JASO since shortly after its IPO in February. The company makes solar panels on industrial scales in China, so you could say its a Chinese solar play. Following its IPO the stock formed a healthy two month base before breaking out in April on a surge in volume and price (20$ - 28$). Since that move the stock has been working on a second base and found good support at its 50 day moving average. I like this chart right where it is but if you want to play it safe look for a break of the line connecting recent highs on above average volume. If you look at the April breakout you can see a similar pattern and indicators to the recent chart, and so I have been buying the stock near $24.

A stock I love to hate is CREE and when I see it going nuts like it has lately I can think of little else than the ride back down. I have posted about the blessings of being short CREE in the past so I won't go into details about why CREE is fundamentally such a great short. I will however suggest that the stock's little squeeze is nearing an end with the daily RSI at 85 and the price trading far above its upper BB, the stochastics said it was overbought days ago. I think its a no brainer short up here, there is no news to justify this move, not even remotely, eps growth is still negative.


I'll be back to posting weekly when I get back, in the meantime check back for posts by betweenthebars (btb) and indigo-alien. But don't stay inside and trade all day, enjoy the summer while it lasts! -pyth

Disclosure: I own JASO stock, CREE July 25 puts and CREE Sept 22.50 puts.

CROX, CREE and SHLD

Last week was great for the fad shoe company CROX. Not only did they get pumped by cramer multiple times but they were added to the S&P SmallCap 600. This action has taken CROX almost up to the previous high that was made on a very sharp reversal day when they last raised guidance. I suspect many have been buying in anticipation of a similar raise in guidence this quarter by the ugly shoe company. And then what? Last time they did that CROX gave up all the gains and then some followed by a sharp decline. I think most would agree this compnay is going to be a fantastic short but the problem is in deciding when to enter. The stock is already heavily shorted and it nearly at the highs. Short squeeze aside I think now is the time to enter CROX shorts. Set a tight stop loss at 35 and ride this one down to at least 30 in the short term.

CREE is a stock that I have follwed for a while and shyed away from after the company repeatedly disappointed me. I was always excited about the short squeeze that never happened and I eventually realized they were right all along. I know a fair amount about the company and their technology so let me know if you want more background. I bring CREE up becuase it is at a pivot point. Most people would probably look at this chart and say you should long it for a gap fill, but keep in mind that gaps also provide support/resistance. The recent run is encouraging for longs but in the context of a broader rally in semiconductor stocks it has actually underperformed. From here at the upper end of it's range I think you could get at least a few points out of a short perhaps more if the support at 18 fails and it has twice recently. Set your stop just above entry and be mindful of the possibility for a quick gap fill up to 22 (an even better place to enter or add).


And another double top in SHLD. Ride it down to at least the upsloping trendline and set your stop around 165.
By the way, what I am calling double tops could quickly become double top breakouts. If these stocks start making new highs on above average volume be sure to cut your losses short. At these pivot points you have a low risk entry. Also, GS has not been able to move higher since last week but has not reversed either. It takes courage but I think it is going to be a great short when the wind comes out of the financial sector's sails. NVDA has confirmed the top on volume and has started moving back down. If you went short last week you are making money.

disclosure: I have CROX Oct 30 puts

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

Short term (3 month daily chart) and long term (10 year monthly) technical arguments against CREE

Disclosure: I own CREE puts

Short-term (ICE), long-term (TIE) and naked shorts (CREE)

I'm gonna let the charts do the talking this week, first a short-term (daily chart) short: ICEA long-term (weekly chart) short: TIE
A naked short (short em even if you can't borrow them): CREE
And a new years bonus short!!: MOS
Happy New Years from Stock Geometry!!!

CREE

Disclosure: I picked up a few calls today.

The 100th Post

It is my pleasure to bring you the centesimal post on Stock Geometry! Since the first post here on May 24th 2006, the other contributors and I have been calling em like we see em with a high success rate (AHM, CCRT, DDS, COF, JASO, OMR, DECK, CREE, LEND, etc). We haven't been right on them all but its the mistakes that we learn the most from. While this site was originally started with purely chart interpretation in mind, it has developed into more of a hybrid of fundamental and technical analysis which I believe to be the most profitable method. In honor of the occasion, I wanted to fill you in on some of the technicals and fundamentals of the site its self, here's some data on the last 6 months:


As you can see, the readership is still quite small but has been increasing even during the typically slow summer months. Currently, the biggest days for the site are when there is a link posted on yahoo finance or other blogs. Thats when we get the most attention, so thanks for spreading the word. Theres a bunch of interesting info in the pictures above and below for the web 2.0 nerd types like me, just click on the pictures to zoom in (as usual). Below you can see the geographic distribution of the readership:


I've got it broken down by city and country there. A few notable cities are Urbana, IL (where I live), Santa Barbara (where I use to live and betweenthebars lives now) and Aachen, Germany (where indigo-alien lives). We also seem to have some frequent readers in New York City, Louisville, Pleasanton and Vancouver. Those of you who we have not met, please introduce yourselves!

I think the three of us contributors agree that we get just as much out of the process of writing on this blog as we do reading each other's work. The idea here is to share thoughts on the market in hopes that we can learn from each other. There is no ulterior profit motive here, note the lack of advertisements, and I hope it stays that way. Fortunately, google provides this great blogspot service for free along with the service I used to generate the above data called google analytics. So a big thanks to google. I also wanted to take a moment to thank the other contributors, Ian (indigo) and Vince (btb) for making this such a fun and educational project to be apart of.

Going forward we don't have any big plans at the moment. I am pretty happy with the ways things have evolved with one small complaint, it would be great to see more feedback in the comments. Even if it is just a short note about a chart, some news that was overlooked or even a missspelled word, it is greatly appreciated. I'd really like for this to be more of a two way process between the bloggers and the readers. Thanks to all of those that have commented and I'm sure the number of comments will grow with the traffic.

If you are interested in keeping up on non-market related activities that we have going on , Indigo and I both have other blogs which you can find the links to on the right hand side of the page.

Ok well, congrats Stock Geometry on 100 posts! Now for the next 100! Thoughts?

Short the LBOs? (Leveraged Buyouts: DCX, TXU)

I was reading The Kingsland Report yesterday, as I do everyday, when he got me thinking about these recent private equity deals as possible shorts. I know it sounds crazy but the market is beginning to doubt the future of these buyouts with the target's stock prices falling well below the buyout price. Now many in the arbitration world see this as a boon for them, they buy the stock and get the difference when the deal goes through. And I assume they incur little risk by hedging themselves to be safe (with puts). As the credit market has become crowded with debt to be sold for these deals the appetite for debt/risk has fallen dramatically. This goes back to the worries many had months ago about the housing market woes and sub-prime problems spilling over into other areas of the economy. Well they did, in a big way. It has become increasingly possible that these deals may fall apart altogether which, in and of its self, would crash this market, among other reasons why the market may crash on Monday. Now for a few charts.


Diamler Chrysler recently announced they would have to postpone the sale of their Chrysler unit to Cerberus Capital because banks were having trouble financing their 10B$ portion of the 12B$ deal. Honestly I don't know exactly what this means for the DCX stock, but I do see a perfect head and shoulders top on the chart with an 80$ price objective. The August 85$ puts are trading for only $1.50 so if the stock does go to 80$ they will have a cash value of 5$, this gives the trade a nice risk to reward ratio in my view (possible 233% profit).


I thought the TXU deal, the biggest LBO in history, was done months ago. But as it turns out some greedy investors think that they can get more for their company and the banks must be praying that they get their way. This deal must be facing a number of hurdles in getting it financed and on Friday someone bought 10,000 January 2008 TXU 65$ puts for 2$. Thats a 2M$ bet that TXU will be below 63$ by January 2008 and the deal was priced at 69.25$. If 65.10$ breaks I can see TXU heading to its next support area around 62.50$ or maybe its 200 dma (61.50$) in no time.

Another one I noticed some heavy put buying in was HET. This deal must be a shoe in for the arbitration investors since HET is such a profitable fast growing company as opposed to TXU or Chrysler. But for whatever reason (which could be part of an arb hedge), investors bought 15,174 August 80$ puts around .40 Friday. Take a look at the HET chart, it is trading well below the 90$ offer and recently began to slip further. If even one of these deals falls apart you can bet the stock will crater and the other LBO stocks will probably tank in sympathy, keep an eye on the headlines.

I'll try and post more ideas later tonight. CREE continues to be a slow motion train wreck towards 20$. AHM has completely fallen apart and canceled their dividend, expect bankruptcy soon. CCRT, well I hope you got some puts in that one. IMB same story. I'm thinking Sprint (S) 20$ puts might be a good trade on Monday also. Also, Indigo had the great idea of doing polls each week to encourage feedback so please vote in the poll on the right. We are very curious what our readers think about this current market action. Good luck tomorrow, and please be safe (honor your stops!!!).