Thursday, September 11, 2008


Republic Airways (RJET) broke out on one of my favorite patterns where the white candle slightly exceeds the high of the previous white candle. RJET broke out from $11 resistance, but on lower volume. Also notice that RJET is forming a higher low, a bullish sign. The further decline in oil will fuel this one to new short-term highs. I’ll add this to my watch tomorrow.

The price of refineries typically has an inverse relationship with the price of oil, but I don’t understand why Frontier Oil (FTO) would move up 12.7% today on no apparent news. My guess is that Hurricane Ike is heading toward Houston, home of the Texans, but also a lot of refineries. The breakout may be a false one, but FTO did break above the 50-day MA. Wait for confirmation tomorrow as well as updates from the National Hurricane Center.

Oil, at the time of this writing, is sitting at $100.96 on the NYMEX. The Amex Oil Index (XOI) was up 2% today and added fuel for Sunoco (SUN), which by the way, has no refineries in the area. After completing a descending triangle, SUN broke to the upside on high volume. Typically, these formations break to the downside. There is resistance at $48, but the major area lies at the 200-day MA at $50.25.

As oil prices continue to drop, automakers such as General Motors (GM) will jump in response. In addition, news that automakers may receive $25 billion in low-interest loans helped GM to breakout. The proposal is still being discussed in Congress. GM was forming higher lows and consolidated at the 50-day MA without any breakdown. GM should hit $15 in a few days, meeting resistance at the previous short-term high.

Allergan (AGN) gapped up and maintained momentum throughout the day after the company released studies showing that Botox may treat headaches. Umm…I don’t know about you, but I’ll stick to my aspirin. AGN will be asking the FDA for approval next year. Meanwhile, it looks like AGN is heading higher. This stock has the tendency to breakout after month long consolidations, but typically the breakouts are stronger the longer a stock consolidates. While the headache treating Botox may be promising, the clean break through the 200-day MA is a promise.

No surprise that Merrill Lynch (MER) got taken down along with Lehman (LEH) today. I would say that after Lehman, Merrill is the weakest firm, given the atrocious losses they reported over the past... (how long has it been?). Remember the $8.5 billion offering (at the $22.50 level) in July 29th? Investors may be wondering what they were thinking. After forming a descending triangle, MER made the typical move by gapping down on strong volume. There’s no sense in going long MER. Shorts should consider waiting for a dead cat, using the gap as resistance.

Sunrise Senior Living (SRZ) reported a loss of $0.63 per share vs. earnings of $0.15 per share a year ago. This company is full of trouble. Remember back in March when SRZ had to restate earnings from 1996-2005 which effectively reduced earnings by $173 million? SRZ also reported a loss for Q1, too, of $49.9 million. This is something investors shouldn’t touch, and the price action showed it. In the past two days, SRZ fell from $21 to below $16 today. Two warnings would have prevented this loss: 1) yesterday’s break in the trend, 2) break in the 50-day MA. This stock was toast before today even came. Who says technical analysis doesn’t work?

Kenexa (KNA) popped 26.4% today after the company announced that they lowered revenue expectations to $54 - $56 million from $57 - $59 million and income expectations to $10.3 - $10.6 million from $11.4 - $11.8 million. But that’s not all, 10 analysts came out today issuing reports on KNXA! This stock was toast in the morning.

  • FBR – Reiterated “Market Perform”, reduced target price to $19 from $25
  • Brean Murray, Carrat & Co. – Reiterated “Buy”, reduced target price to $23 from $25
  • Jefferies & Co. – Reiterated “Buy”, reduced target price to $22 from $27
  • Wedbush Morgan – Reiterated “Hold”, reduced target price to $19 from $21
  • RBC Capital Markets – Reiterated “Sector Perform”, reduced target price to $18 from $21
  • Maxim Group – Reiterated “Buy”, reduced target price to $26 from $30
  • Credit Suisse – Downgraded to “Neutral” from “Outperform”
  • KeyBanc Capital Markets – Downgraded to “Underweight” from “Hold”, target price $15
  • Lazard Capital Markets – Downgraded to “Hold” from “Buy”
  • Susquehanna Financial – UPGRADED to “Neutral” from “Negative”

Two things surprise me the most (not!): 1) Only one upgraded the stock out of nine, 2) how the heck do most of them reduce their target prices without downgrading their rating? This is some serious herding behavior and terribly confusing if you ask me.

1 comment:

JB said...

Interesting blog with lots of info.