For all you bargain hunters - A post-Christmas stock sale

In case you were like me and found a lump of coal in your stocking I wanted to offer up a couple of investment “presents” that are very attractively setup and ready to pop higher as long as the markets want to continue their push northward.  The first is Consolidated Communications Holdings, CNSL.  For the first ¾ of the year it has had a very, very nice 2014 as it rose more than 60%. But since October it has taken a breather and been consolidating sideways.  This consolidation has done exactly what investors would like to see as it has allowed its momentum oscillators to unwind their overbought conditions while at the same time stay bullishly configured.  The MACD has moved above zero and its signal line has crossed above.  A break and hold above 28 would be the confirmation investors would like to see that it has likely resumed its trek higher.

The second opportunity is Blue Nile an internet diamond/jewelry provider. Unlike CNSL above,  2014 has not been good to NILE shareholders as it lost almost half its value as the company struggled finding its niche with the very fickle online shopper.  It appears as if investors believe the turn around it working as they have bid up share price almost 50% from its bottom. This reversal has formed a very nice, symmetrical inverse head and shoulders pattern that, if plays out, says its only halfway complete and can add another 30+% more to its share price. A break and hold  above the 37 neckline would be what bullish investors would be looking for as an attractive entry point.

The FED plays Santa to the markets

In last week’s post I mentioned the market was close to a short term bottom and our VIX buy indicator was close to triggering. It was clear that the market heard exactly what it wanted to from the FED on Wednesday and we were off to the races.. Not only does it look like the FED provided the impetus to kick off the year end (Santa) rally we have been waiting for but it looks strong enough that it will likely push it on to new all-time highs. Since a rising tide lifts all boats I am seeing a plenty of excellent setups and I thought I would post a couple of opportunities that came up on my radar.

The first is FireEye (FEYE) the internet security company. It went public in September of last year and jumped more than 300% from its IPO price and peaked at $95 in March. The 2 months following the peak were disastrous for shareholders as price plummeted 70% bottoming in May to gust above its IPO price. Since then it has been consolidating with each attempt to move higher being rejected, as you can see in the chart below constrained by the blue down-trending resistance line.  This week it broke above that line on strong volume and a turn up in momentum on both the RSI and MACD.  You should also notice it is approaching a very important (gray) horizontal resistance just above. If it is able to push through and it looks like it will, the upside target is 43-45 which would present a very nice 30% gain from here.

The second idea is Organovo (ONVO).  This company has a really interesting business (3d printing of human tissue) and if you haven’t heard of them I would encourage you to dig a little deeper as they present the very interesting and potentially compelling long-term opportunity based upon their technology.  Technically the chart for ONVO is similar to FEYE in that it peaked, has been in a long-term downtrend consolidation and broke out (from both down-trending and horizontal resistance) this past week.  While momentum is bullishly configured we have yet to see a volume spike I like as it provides confirmation that the rest of the market is in agreement with you. What I am expecting is a small push higher and then a back-test to the breakout level. If that occurs and holds that would provide what I believe would be an excellent entry.  ONVO, like FEYE has big upside potential with the first stop being just above 9.

Is it Time to Buy the Dip?

It was a tough week for investors as fears from the ongoing oil price meltdown have pushed beyond just the energy sector and into broader market. Corrections are a normal part of every bull market and should be looked as opportunities to deploy un-invested capital. Of course the $64,000 question for investors looking to do so is when will the bottom of this correction be in?  

During this multi-year bull market I have found something that works very well. In the bottom pane of the chart below is a plot of VIX (blue lines) with Bollinger bands (gold) overlaid on top. The upper pane is a plot of the SP500 stock market index.  For those not familiar the VIX is commonly referred to as the “fear index” by the financial news talking heads. But that is a misnomer as there are times based on the price of this index that it construes fear, but other times it reflects complacency.  Without spending more time on the VIX as I will leave that to the reader, in very simple and general terms, it tends to rise when the market falls and falls when the market rises.  You can see that in the chart below.  Peaks in the VIX tend to mark bottoms in the market and vice versa. What you can also see is that every time that 1) the VIX closes above 17 and 2) outside the Bollinger band and then back in, it has been excellent at identifying those times to “buy-the-dip”.

Looking ahead to next week – Since the VIX is still outside the Bollinger bands and has NOT moved back inside, we have yet to see the bottom and as such “dip” buyers should continue to be patient and wait for confirmation.

Russia - The meltdown continues

The Russian stock market has had a rough go of it since its peak in the first half of 2011. As you can see in the chart below since that time it has been in a severe downtrend and has lost more than 50% of its value.

Not only has the Russian stock market been negatively impacted by the breakout in US dollar strength (see chart below) as have most other non-dollar denominated assets but also been piled on by two other significant events.  The first being the fact that since their economy is mostly energy based, the massive decline in energy prices (gasoline, oil, heating oil, natural gas, etc) of late are shrinking exports.  This combined with the geopolitical fallout of the Crimea and Ukraine debacle (and the resulting outcome/punishment of economic sanctions) is having a toxic effect on their economy and driving away outside investors.

The uber bearish head and shoulders pattern that formed this year has played out to its projected target this week. As one who is interested in undervalued assets the Russian stock market is currently very attractively priced and represents a compelling value right here when compared to most other world indexes.  In spite of this positive development and my desire to buy things at a discount, until the negative geopolitical and energy trend forces are resolved, this is a market one should avoid at all costs.  It is not unreasonable to think that it could again touch its 2008-09 low around 10 which would be another 50% decline from here. My biggest fear is that it would not be unreasonable that if these developments continue without some sort of relief, Mr Putin may be forced to act in desperation to save his country and people. There is only so many times you can poke an angry dog before it retaliates.  Lets hope it can end constructively for all parties.

Consumer's early Christmas gift

Happy Belated Thanksgiving.

I hope everyone had a wonderful time with family and have lost those feelings of being too full.

Since the double bottom in 2009, oil has risen more than 300% peaking in April of 2011.  Since that high, it has consolidated and been range-bound bouncing between $80-$110/bbl.  Unlike virtually most other commodities which are in a bear market, oil has held up pretty well.  That is, until earlier this year when in August it broke below its long term support line.  As you can see in the chart below it has been in a free fall ever since, closing Friday at $66/bbl, down 14% this week alone.  As with most commodity price declines, over-supply and weakening demand tend to be the major contributors.

Declines like this are eventually followed by either a change-in-trend rally or a multi-week strong counter-trend push so an opportunity (eventually) awaits. Before you bottom guessers try to catch the proverbial falling knife, be aware the measured move out of this pattern is around the $60/bbl level (the red circle on the blue horizontal line), the same price it found support in July 2009. If price were to follow symmetry down as it did up, its possible we could see oil prices back in the $40/bbl range next year. Unless you are nimble and investing/trading on a very short time frame or being short, it would be my recommendation to stay away from this sector until price has confirmed a bottom is in. What I will be looking for is volume confirmation (via exhaustion selling) combined with some sort of bottoming pattern (such as a divergent low double bottom).  Then and only then should those looking for a swing long investment jump in.

The smart money is short oil and energy stocks right now and the trend is definitely with them. If you too are short, congratulations but be careful and insure you have protective stops in place. A quick reversal in plans by OPEC to cut supply would be all that is needed to turn a profitable investment to a loser.