By: Zev Spiro
The major market indices continue to consolidate, while bull and bear markets are occurring in different names and sectors. On February 16th, I highlighted short opportunities in copper names such as Freeport McMoran Copper & Gold Inc. (FCX) and Southern Copper Corporation (SCCO), which began to roll over this week. The follow-through action on the short side is hinting that bearish patterns in other sectors may follow through as well. Yesterday there was heavy selling in semi’s and numerous basic material names that triggered bearish patterns. On the other hand, individual retailers and a few financial related names look poised to move higher. Below is a long idea in Polo Ralph Lauren Corporation (RL) and a short opportunity in Celanese Corp. (CE).
Chart 1: RL was on a steep climb since the beginning of February and topped off the advance with a large gap-up as a result of good earnings and buyback news. Since the gap, it has been consolidating in a bull flag pattern. Volume has been declining during the consolidation period which is very healthy. Currently, the 20-Day SMA has caught up to the price action and may provide rising support that could spark a breakout. A close above the flag’s upper boundary line would signal the next directional up-move, with heavy volume adding confidence to the trigger. Trigger: Confirmed move above the upper boundary line of the flag, currently $127-$127.50, Target: $140-$142, Protective Stops: initially, can be triggered on a close below $123.39, but could be trailed higher once there is an advance.
Chart 2: CE: On February 22nd, the end of the intermediate up trend was signaled by a simultaneous break of the 50-day simple moving average and the intermediate up trend line. Currently, a potential bearish head and shoulders reversal pattern may be forming. Trigger: confirmed move through the neckline, approximately 39.80, Target: $34 is the minimum expected objective. It is obtained by measuring the height of the pattern and expanding lower by the same distance, from the neckline break. Protective Stop: confirmed move back above the neckline.
Updates:
1) Venoco, Inc. (VQ) – Market Letter 3/9/11: Triggered short and confirmed yesterday with percentage confirmation.
2) V.F. Corporation (VFC) – Market Letter 3/8/11: Closed above the buy trigger yesterday, will confirm today if it closes above again or volume surge. **NOTE: there was a .63 cent dividend paid yesterday.
3) Monsanto Company (MON) – Market Letter 3/2/11: Traded right down to the neckline yesterday. Monitor for the short trigger.
4) Goldman Sachs Group, Inc. (GS) – Market Letter 2/23/11: Retested the neckline yesterday which provided resistance.
5) Fortune Brands, Inc. (FO) – Market Letter 2/22/11: Range-bound in the base, approaching the potential breakout level at $63.50.
Have a great weekend!
If you are interested in receiving Zev Spiro’s market letter, please email zevspiro@oripsllc.com subject “T3”
*DISCLOSURE: Short FCX, SCCO, MON, GS; Long VFC
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