Sunday Rock Blog: Time For Shorts to Fry

Taking a look at the (market leading) small caps (IWM), its pretty clear that something violent has just happened. Stocks were in the midst of a healthy correction (pennant pattern) and finding support at the rising 200 dma in late October. After a shaky bounce IWM got slammed through its 200 dma but ultimately reversed in a V-bottom-like pattern retaking its 200 dma. Recently the CCI and stochastics have given buy signals and now that IWM has regained its 50 dma I see nothing but pain ahead for shorts in the coming weeks:

While most people point to the poor performance of former market leaders (like AAPL and GOOG) new leaders are emerging. Take a look at FB over the past few weeks, the rally is relentless and on strong volume. The ~3.5 month base is really paying off now:

Whether they are new leaders or just heavily shorted stocks getting squeezed (shorts fear higher taxes in 2013), 100%+ gains in popular stocks like FSLR, GMCR, and RIMM over the past six months makes for some very positive sentiment. FSLR seems to be just getting started after breaking $26 last week. It should see ~$32 by Christmas:

Shorts seem to be panicking on GMCR as it has soared 100% on huge volume spikes:

RIMM, the stock that everybody loves to hate, bulls sure aren't hating it right now. Volume has been through the roof as RIMM surged above its 200 dma (declining):

The point is, despite all the negative press lately about the "fiscal cliff" stocks have rebounded very strongly from the November lows and appear to be starting a new leg up. While many stocks have struggled lately, others have been exploding higher (see above). I'd be surprised if we don't see a continuation of the recent rally to new 52 week highs on the indexes by the end of the year. Happy holidays to all!

Disclosure: I am long IWM calls and FSLR stock.

PS.  I see all solar rallying strongly here (I am long TAN, SPWR, JASO, ASTI, ENPH, MCP also)

Narrowing Range in Crude Oil

Crude is looking a little extended in the short term after the past three months of rallying but this weekly chart shows a longer term neutral to slightly bullish formation. Crude has made lower highs and higher lows for about two years now forming a narrowing range currently ~$80-105. With all other equity markets heating up on QE3 I'l like to see crude at least challenge the top of this range, perhaps break out of it after some consolidation. It will be interesting to see if Crude can hold its 50 and 200 dmas, if not, $87 should provide good support. Clearing $115 would make for a beautiful chart, maybe for Christmas.

Renewed US dollar bullishness

Today I rotated out of euros and gold and back into my Aussie dollar short. The euro bounce I was looking for played out and now I think its time to get back on the US dollar bandwagon. As mentioned in a previous post, I think that the recent decline in the US dollar which began in early 2009 is over. I am looking for a significant rally in the US dollar overt he next 6-12 months. I am still bullish on gold but its been weaker than I anticipated after bouncing off of key $105 support. So I took profits on GLD with the hope of getting back in lower sometime soon.
Disclosure: I am heavily short AUD/USD again.

Natural gas is forming a major bottom (UNG)

I think its time to sell crude and buy natural gas in size. I love yesterday's inverted hammer candle on record UNG volume. Set stops at the lows!

Disclosure: I own UNG calls

Awesome Examples of Failed Breakdowns

This is the 400th post, hurray! Both of these failed moves came from blowout earnings report and great guidance, I'd encourage you to look into these reports. FSLR and ICE both gaped higher and ran to the highs today on massive volume. In doing so they reversed significant chart breakdowns from the days prior. As I mentioned on Sunday, failed moves lead to fast moves and that's exactly whats going on with these two. Its hard to see these slowing their ascent for a few days. Click on the charts for more details.And by the way, yes, I am now bullish on First Solar. If you recall my multiple bearish posts before about FSLR, I thought it was an over bloated pig at $300 with a 150 PE. I said my target for it was $120 and it went there. Now their PE is a more reasonable ~25 and FSLR does have some good things going for them; Obama's energy policy, residential expansion, lowest cost per watt and they are demonstrating resiliancy in the face of economic hardship. I currently don't own any FSLR but looking to add and I have some JASO and SPWRA calls.

One triangle to rule them all!

I will add more comentary to this later tonight if I have time. This thing could go either way, up or down big in the next few days, but its going to move. Theres been alot of talk lately about triangles in the Q's, S&P and Dow and I just wanted to throw my weight behind that IWM triangle because thats the index that leads. Most atre expecting a downwards breakout of this trangle which targets about 7,000 on the dow, 700 on the S&P and 400 on the RUT. This isn't a bad expectation because the prevailing trend is down. But the overwhelming bearishness out there and panic leads me to think the real move will be up. But you have to be careful and go with the flow.