IYR - Overbought

Catching tops is never a good idea, and I don't recommend it.  Certainly it isn't one of my styles.  However, sometimes you wait for the trade to come to you, and some tops are so obvious that they're just begging to be shorted, like BIDU and CAGC posted last week.  This week, it's the REIT index, or IYR.  How overbought is this?  Let me put it into perspective.

In the last 10 years, there was only one instance - just one, that shared the same run.  Hint 1 :  It happened in 2007.  Hint 2: It happened at the all time high.  Hint 3:  It happened a month before Bear Stearns became a penny stock.

The reward to risk ratio by shorting the IYR through puts on DRN is extremely high at the moment.  The IYR is currently at the key resistance of $50, at RSI levels that occur once every few years, at the heart of bull markets.

 

AA - Breakout

ry nice breakout today above both 50 EMA and SMA on decisive volume.  Two things to watch for here.  First the obvious, wait for a retest of the 50 EMA to see if it holds.  Second, this must break through the multi-year resistance at $15.    I believe that AA will trade between $14 and $15 in the next 2 weeks, and the earnings will make the decisive call.  If it's good, I see a breakaway gap above $15, and to $20 by the end of summer.  If it's bad then I see a potential head and shoulders playing out that will take AA back to $10.  Either way, keep an eye on the bottom trendline of the channel.   A close below that spells trouble for AA.

GE - Breakout

Late by a couple days, but nevertheless GE broke above the key $17.00 resistance and also the 360 EMA.  Wait for a pullback to 20 EMA before going long.  Most likely that will be between $16.50 and $17.00 over the next couple weeks.  Expect to hit at least $22 sometime during the year. 

BIDU - 3/10/2010

I hate this stock.  I hate it because it's everyone's little darling.  Now it seems retail investors are piling on in the very late stages of the run, weeks or even days before the collapse.  There are so many gaps in this turd that we'll have to go down to $65 just to tag them all.  Do I recommend shorting darlings of the market, in uptrends as strong of a trend as this?  No.  But it is worth the risk to buy some OTM puts?  Certainly!  Believe me, the gap at $395 will be closed sooner than you think.

We are VERY close to the reversal.  Take a look at the charts if you don't believe me.

3/17/2010 Update - It seems like the top put in on Monday will be the short term top, as BIDU is likely to retest anywhere between 500-525.  I predict that this is not the absolute high, as BIDU will hit $6xx sometime during the summer.  $700 is not out of the question.  Once that occurs, I will buy leaps as this will crash to fill the gap at $55.

3/10/2010 Update

Ok, listen up folks, there is a lot of money to be made very soon.  The charts are learning towards the bulls, so I am long term bullish, but short term bearish for the next 2-3 trading days.  Refer to the VIX comparisons below.

To me, such a similar pattern should not be ignored. 

 3/17/2010 Update:  Boy was I wrong on this call.  One powerful run we have here...

 

Dawn of new Bull Market?

Just kidding, but we are close...just a little more confirmation is required before declaring a bull market.   However, just by looking at Russell 2000's action over the past month, there is no doubt that the market wants higher prices.  In hindsight, the correction on 2/5 was as deep as we're going to see, bouncing off the 200 EMA with enormous volume by BIG MONEY.  If this correction was to dip twice (first being 2/5), then the SPX should not have held the 20 EMA for 3 consecutive days from 2/23 to 2/25.  That was sign to GET OUT of shorts and stay cash or go back to long positions.  I am optimistic that 1,150 will be broken by the end of March, followed by a period of consolidation and retest of 20 EMA at least once between now and the end of April.  That retest of the 20 EMA will be the next buy point to enter 50 or 33% of position to see if it holds.  If it doesn't hold, I'd expect more fakeouts below the 50 EMA to suck in more bears, in which case the 200 EMA will stand as the next logical buy point.

3/3/2010 Update

The market has been showing significant strength and is now facing a key resistance line that has held as support since Aug '09.  Looks very toppy to me - short term down movement is expected - will be very surprised at any kind of rally tomorrow, but hey, anything can happen.