SSS - Thoughts on the Short-Side a Little Over an Hour into the Trading Day on Friday, October 21, 2011
Short-sale targets GMCR, BIDU, PCLN, FOSL, and AAPL for the most part don't seem to be moving much in the face of a big options expiration day rally.
GMCR, which hit our downside price objective and kept going lower into the 60's, looks shortable into this rally up into the 200-dma. Given the severe weakness in the stock, we would look at the 200-dma as both a trailing stop for any of you who decided to try and be pigs on GMCR and hold the position for further, longer-term gains, and also an area at which to short the stock. We think once you get within 3-5% of the 174 price level the stock becomes shortable again. If one does comparisons between GMCR and other model-stock shorts like NFLX from this year or CROX in 2007-2008, we can project a downside target, ultimately, for GMCR at below $40 over the longer-term. In the meantime, price/volume action in real-time rules all, despite the downside potential that we see in the stock over the longer-term.
BIDU is down on the day, so has not triggered any upside stops or hit our downside price objective at the lows of late September near the $100 price level.
PCLN remains below its 200-dma which we would use as our upside stop on any short position in the stock.
FOSL is rallying right up into its 50-dma at the 91.30 level, which also serves as a guide for an upside stop.
Despite being a big-stock NASDAQ name, AAPL is up less than 1% on a day when the NASDAQ Composite is up 1.62% at 7:47 a.m. Pacific Time. The stock remains shortable in our view as long as it cannot rally above the $400 price level.
The market rally appears to be in response to the possibility of massive QE4 coming from the Europeans. We are already acquainted with QE1 and QE2, while the latest "Operation wist" from the Fed has brought on QE3. The Europeans are coming in with QE4 and the Fed is starting to talk about QE5 in the form of buying up Mortgage-Backed Securities (MBS). The financials, as measured by the XLF, are rallying in response while gold is up over $26 on the day, perhaps some signs that the market is anticipating more mass-money-printing activities as government officials wrangle over just how much ink to put into those printing presses.
We note that the market has a bifurcated feel to it, but leadership on the heels of Tuesday's follow-through day has not materialized in any meaningful way. The Market Direction Model remains on a neutral (cash) signal, but we feel some short-sale targets may be in play here nevertheless as we approach the market less as a stock market and more as a market of stocks, assessing trading opportunities on both the long and short side on a stock-by-stock-basis. Testing the short side into this rally is fine, just keep your stops in place and adhere to them.
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