Wednesday, August 15, 2007

Chart Review - James River Coal , Moodys, and Sears.

Let's start with Moodys (MCO). The above chart was posted on Aug 1st. where I was looking for a rally in the 60-63 area. The top chart shows what actually happened. The top tick was $59.89. We did get the rally that we envisioned. Does it makes us wrong that $63 was not reached. NO. This is not a perfect science. What we need to do is interpret what the tape is saying and I would interpret this stock as being even weaker than I thought due to the fact was that was all it could muster after a significant drop. Remember, we learn much more about stocks on corrective rallies/pullbacks than we do on the initial move. Volume and extent of correction of the stock and compared to its peers and the market all give us clues as to its health. Nothing is perfect but this is a close as it gets.

Let's look at Sears.
Here are my comments on Sears from July 16th "(SHLD 3rd chart from top) has a very nice low volume flag forming here. Trap door dead ahead. As they say in the tubes, mind the gap! Eddie Lampert is a balzy trader, but there is nothing he can do. The charts are the charts and they don't discriminate. A break of $155 and 152.65. should do the trick. Simple yet elegant I think. "
And my comments 2 days later "Don't look now but Sears (SHLD) broke..... fasten seat belts, put trays and seats in upright position .......$135 here we come."

Well we reached target and then some. We should get a consolidation down here but real support is not until the 115-120 area. The stock needs to catch its breath before it can embark on its next leg down. Some traders would take some profits here (ie. cover half), others may move their buy stop just above the market so they don't give back too much. Whatever your strategy is, and you must have a strategy, stick to it and don't let CNBC, some analyst or some other emotional event make deviate from it.

Regarding James River Coal (JRCC). On Aug 2 my comments "The lows of the rounding bottom are being tested again this needs to hold here."

Well the jury is in and the lows did not hold, in fact the stock gapped thru. Exhaustion gap? possible, but for now we wait and watch and as I said before be patient. We must let the item we are watching stop falling, bounce, test the low, maybe bounce again and see if the first bounces highs can be taken out. This may still be inconclusive but it is a safer method than trying to catch the proverbial 'falling knife'.

Be extraordinarily impatient with losses and extraordinarily patient with winners. Good trading to you all.


jmf said...

Moin from Germany,

great SHLD call. I follow the stock since 2006 and always wanted to go short.

But in the "good" times Eddie has always managed the stock with his buybacks (despite lousy fundamentals and a high valuation)

But suddenly fundamentals matter ... :-)

From their latest release

In addition to the 9.6 million shares that the Company repurchased during its second quarter at a total cost of $1.5 billion, or an average price of $153.50 per share, the Company repurchased approximately 0.8 million of the Company's common shares at a total cost of $105 million since the end of the second quarter (for the period from August 5, 2007 through August 10, 2007).

Even the "magic" of buybacks doesn´t help the stocks.

And with a new buyback programm already approved he has plenty of money/debt to average down :-)

Harleydog said...

Yes tough to bet against the like of Eddie(Lampert) and Steve (Cohen), but when the tape says down it is the best of all allies.

We shall see whether the Sears part of Sears Holdings (closet hedge fund) becomes more of a liability going forward with its massive real estate(I am a real estate bear) and poor merchandising(I am a retail bear). De-leverage can be excruciatingly painful.

These buybacks JNJ, HD etc may all look very ill-timed in the future. thx for your post, much appreciated.