Thinning Out

thewife Tue Jan 18, 2011 9:53pm EST 2 Comments

No, I am not talking about your hairline, though some of you may relate.

I am talking about something I have been noticing as of late, which is that I am finding a plethora of set-ups, but not many of them are performing. The ones that do, don’t move for long. This tells me that momentum trading is thinning out in the near term. Don’t worry, I am not becoming a bear, but I am feeling cautious. I am prepared for a pull back in this market. Make no mistake, I am a still a major bull for 2011.

Today, I blew out of $RBCN, not because it was downgraded, because I found the downgrade to be without merit. The Piper Jaffray analyst lowered the multiple. He didn’t lower his estimates or speak with company management, so although he reduced his price target from $50 to $25, I didn’t feel this alone was a reason to give up on the name. I vowed to watch it for price action and initially it stayed on its trend line and above its base. Not much time passed before it broke down below the 50 day moving average and broke downward through its up trend line. This was my tell and I dropped it.

While I don’t like to trade a stock on another ticker in the sector, leds have been taking some heat lately. $CREE punted and affected $RBCN after hours. I made the right decision.

A name I am stalking in the near term is $UA. It has a nice base around 54.60 and is starting to break out above it’s ascending triangle. As you can see in the chart below, the MACD is breaking to the upside. Some of you may know that I spend my weekends shuttling my daughter to her ski race training and races. I have noticed that everyone on the ski mountains are wearing Under Armour. The ski shops are selling this brand as the best thermal products for skiers to stay warm during icy conditions. While I believe the ticker will be held back this week by options expiration and will not close above $60, the moment it breaks above its 52 week high of $60.14, the sky is the limit. I expect this company to be strong in the coming months.

Another set-up I will be watching closely is $ORCL.
For one thing, I like that they don’t report earnings until March and for another I like the upside in earnings in the sector. The chart below shows a breakout from a falling bullish wedge as well as momentum in buying volume.