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October 19, 2010

|Includes:GMCR, Alphabet Inc. (GOOG), JPM, PCLN, POT, ROVI, V, WDC, WFC


Obviously, the market had a tough day Tuesday but let’s just say that the rate of ascent, the gains got and the fact that many leading stocks are now well extended would all argue that taking at least a breather here would be healthy. 

 

If it’s all, say, just a one or two-day affair then so be it.  Back to buying stocks.  As it stands now, though, there is just not a whole lot of quality that's set up.  That’s unless you want to buy something like NTAP and use the 20dma as your cut-loss, though the stock’s action on 10/6 would make me a little gun-shy.  NFLX could gap up after they report.  AMZN and BIDU report on Thursday and they could too.  So who knows?   

 

I have my longs: GOOG, PCLN, POT and ROVI…and have now initiated a few short positions too:

 

JPM with a cut-loss of $38.65, which is both the high of Tuesday’s session and the 50dma.  Looking at $35 or thereabouts as the “rubber meets the road” area.  The stock held above the July lows back in August, therefore printing higher lows in price all while its Relative Strength line went right on heading south.  An interesting divergence, to say the least.  JPM’s RS line is now lower than even in July and the stock looks ready to give it up.  If it breaks down through the $35 level I would look at around $32 next…. 

 

(It should be noted that WFC looks even weaker than JPM to my eye, yet as WFC reports Wednesday morning at the open I took JPM as a short instead.  I would look at any gap-up in WFC as potentially very shortable, especially if it’s up around the $25.50-26.50 level.)        

 

V with a cut-loss of $79.56.  I expect the stock to fall to its 50 day moving average from this point, presently around $72.  I will want to see how V acts when/if it reaches that area.  If it were to enjoy any kind of support then that would probably be the signal to cover; however, if it cuts right on through then look to roughly $65 (September lows) as the next target.  I would probably add to my short at that point, too.  Just bear in mind that V reports 10/27 after the close.  One may want to cover before that event regardless of what the stock is doing.

 

GMCR looks like it has potential here.  One could short the stock, using the high of Tuesday’s session and the 20dma (call it 31.06) as the cut-loss.  I intend to short it at the open if it is close to the present price.

 

The market is far from toast but as there are a few stocks that look vulnerable and the market seems poised to pull back and take a breather, we do what we must do.      



Disclosure: Long: GOOG, PCLN, POT, ROVI; Short, JPM and V.
Stocks: GOOG, PCLN, POT, ROVI, JPM, WFC, V, GMCR, WDC