*Click on the charts below to enlarge them
A review of the portfolio positions, as well as a couple indices from a technical point of view.
The first chart we have is of the Dow Jones Industrial Average. This chart is screaming bear market rally. And the action of this past week has officially broken the steep, unsustainable uptrend that the Dow had been experiencing from the March 2009 lows. Also, notice that this weeks selloff came on increasing volume. In fact, on a weekly basis, this was the biggest volume we have seen in more than 6 months.
Up next we have perhaps the most important sector in the markets today, that being the financial sector. This is the XLF ETF, one of the most widely traded financial ETFs available. Notice that while the general market has been rallying over the past several months, the financial sector has been drifting sideways. If this was a healthy market rally, the sector that brought us within a hair of armageddon would also be leading us out. The sector is getting close to the bottom of its range over the past several months…a break to the downside would obviously be…errrrr…bearish.
Now let’s look at some individual positions that are short in the portfolio at present.
TRLG…for the past few years this stock has obviously loved the 15 – 24 range. Whenever it breaks above that range it quickly retreats, and whenever it has broken below that range it has quickly moved back into it. There are a couple factors that lead me to beleive that a break below that support at $15 and a failure to recapture the range, will lead to TRLG becoming a single digit midget before 2010 is done.
First, TRLG failed to make a new high during this bear market rally we have been experiencing. The rally that took TRLG from below $10 per share to almost $30 came on declining volume. Only when the stock began declining did the volume increase. Especially noticeable is the fact we had the biggest spike in volume in more than 5 years during the 4th quarter of 2009.
It’s fair to say that TRLG is not only fundamentally incorrect, but technically as well.
Next up, we have ADS. We see in this stock a characteristic that has been painfully evident during this bear market rally…that is, a complete and total lack of participation. The volume has been anemic across the board. It wouldn’t be as much of a concern to me if we didn’t see a volume spike everytime there was a move lower. The only time participants rear their heads in this market is when prices begin falling. A bad sign.
I would label $59 as an important price point for ADS to hold over the next several weeks. I expect this one to be a teenager eventually, easily taking out its March 2009 lows.
While we’re on the subject of finance companies that are a relic from credit cycles of the past, let’s look at WRLD.
Below is a 10 year chart of WRLD. I have expanded the time frame because I wanted to point out how important the massive creation of credit and the credit cycle that ended in 2008 was to companies like WRLD and their respective stock prices. Just take a look at the chart and notice how in 2003, as credit really began moving into its blowoff phase, companies like WRLD began going gangbusters as business was obviously booming.
You see the steep and sudden fall from grace this financial name suffered in 2008. Notice how the volume remained heavy throughout the selloff in 2008. The rebound that has occurred since 2009 has been on declining volume the entire way up. We are also running into some resistance around 40, which is why I sold short some more around that level this past week. This is a stock that I expect to be either in the low single digits or a zero bidder before this enema of our system of credit is complete.
And lastly, we have GMCR. This is a typical overextended stock, based mainly on momentum created by weak-handed shorts, who have more or less given up on the stock. There are no technical signs that this stock has topped, which is why it is our smallest short position at present. My adds are going to be extremely wide, as I suspect it could remain in the channel I have outlined on the chart and continue moving upward. I will be looking for some type of break of this upward trending channel either to the upside or downside, as a sign that it is either blowing off to the upside or getting ready to breakdown.
That’s my technical take on things for this…Day 20….Dr. Kellegro.
Disclosure: Short GMCR, TRLG, ADS, WRLD