Wednesday, October 1, 2008


Another interesting day we had. Not in terms of massive movement, but the anticipation that’s building up. I mentioned that this anticipation will keep us in a consolidation area and the reason is because there’s too much uncertainty to overly take one side. I expect passage in the Senate no problem. After an intraday head-and-shoulders pattern, the announcement that Buffett took a $3 billion stake in GE caused an instantaneous spike upward. Without that news, we would probably have been in trouble today.

WE had 2 solid breakouts today: Commerce Bancshares (CBSH) and Epicor Software (EPIC). I added a third, UCBH Holdings for the future.

CBSH is probably the only highly liquid financial stocks that broke higher than its previous short-term high. That’s quite an accomplishment in this difficult environment. But here’s something better: CBSH not only made a new 52-week high, but it’s the stocks highest ever! This is one of the strongest financials to own with a solid long-term (30-year) chart.

EPIC gapped up and formed a breakaway gap. Looking at April’s gap down, EPIC also formed an island reversal. There’s a high chance that EPIC will continue higher based on the success rate of islands. Prior to the breakout, EPIC formed an ascending triangle, known for upside breakouts. Looks out for these formations in your own stocks. Make note of the 200-day MA which could provide some resistance, but otherwise, EPIC has finally started to fill it’s previous 2-point gap down.

UCBH slightly broke out today out of irregular consolidation. This bank has been strong since July and appears to move higher at this point. A break above 200-day MA is a definite buy.

Like the past 3 days, we’ve had numerous breakdowns. We actually hit 116 new lows today vs. 16 new highs…still an unsightly comparison. These stocks are to be entirely avoided, and with all future breakdowns, they are not something to be buying “cheap”, you might end up trying to catch the knife a few times. Today’s breakdowns: SLM Holding (SLM), Verso Paper (VSR), PHH Corp. (PHH), Foundation Coal (FCL), Actuant (ATU), Crosstex Energy (XTXI), and Finish Line (FINL).

Goodness. SLM broke its 2000 (year) support. There aren’t any remaining major support levels and like the homebuilders, SLM is near the level where they were before the big bull run. Remember, we still have hit bottom before we invest in these types of stocks, and now is not the time.

VRS IPOed in May of this year, a terrible time to IPO in my opinion. Whoever got the stock at $10 has lost 80% of their investment in 5.5 months. The problem with IPOs is that there are no defined support level. These levels are critical to determine where we are and we where we will likely head. Wait this one out until higher lows are made.

PHH has broken its downtrend channel and looks like it will go lower. PHH came out early 2005 at $20, and is sitting pretty close to cutting that in half. A bottom is being hammered out and it will take many months before any long position is considered.

There are still people who are into this ‘coal craze’ and still think we’re going to head back up. Maybe we will, but is it likely anytime soon? No. Those are the people that still have yet to sell and once this flush out occurs, a series of bottoms will form. This is a classic parabolic ‘boom-and-bus’ pattern. FCL sitting at the last major support level before it goes sub-$10. I suspect we will hit it.

If you need a short position for the long-term, and I mean for at least a year, then here it is. I don’t judge that by ATU’s chart below, but by the 10 year chart. ATU is in a mature stage 3. At this point, stocks make erratic and deep corrections and seem to have difficulty making higher highs. You can even consider the $29-$32 consolidation as a possible right should of a head-and-shoulders pattern. There is support at $20, but after that, the stock will freefall.

Want another long-term short? Consider XTXI. The stock IPOed in 2004, jumped to $40 and broke its uptrend earlier this year. There isn’t much credibility in support levels for IPOs that have not been previously tested. XTXI is currently at excessively oversold levels and we should see a small bounce before resuming the downtrend. Take a look at a 4-year chart and tell me if you see what I see.

You have to take a look at a 10-year chart of SPAR. It looks SPAR missed the NASDAQ boom-and-bust in 2000 but they finally got it in 2007!. The pattern is nearly identical. That tells me that SPAR won’t be going anywhere for the next several years.

XIDE was a 2004 IPO which cratered from $25 to sub-$5. The stock crawled its way back up to $20 before getting crushed again. There is major support at $5 but I think we go well below that. We haven’t hit ‘puke out’ on this stock yet. Notice the rounded top which is one of my favorite patterns and not just because of its aesthetic qualities.

A few days ago, I presented FINL as a possible short opportunity. Well, here it is. There is some support at $8.50 but I would set a target at $7. FINL had an amazing run up since the beginning of 2008. The $10 level is key because it marks 2002’s high and 2006’s bottom. We should see a nice sized bounce to the 50-day at which point if it fails, I do recommend taking a short position.

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