Sunday Night

Back from an exhausting but amazing weekend. Now it's time to get ready for the new week to come.

What is this weeks theme? In my opinion, it could be the beginning of the downfall I've been anticipating (since now option ex week is over).

All the major indices are very extended from the March Low's. Oil are hitting new highs everyday. And the business media buffoons are ALL resoundingly bullish. Everyone is saying "buy stocks buy stocks!" To me, the ingredients are really adding up now to the calm before the storm.


I want to talk about a few ideas I have been thinking about - First is oil.

Oil has been on an absolute tear but the price action now seems to increase due to inorganic inflation of the prices. Hedge funds just pushing the oil trade up and up refusing to let it sink. But looking at it from a technical perspective, the price action we are seeing in oil is one of a topping formation.



I am bearish on oil for the near future because:
- The stock is now trading in a sideways channel, with a double top formation appearing.
- Indicators are maxed
- THE MEDIA IS POUNDING THE TABLE FOR PEOPLE TO BUY. Usually when this happens, it is because wall street wants average investors TO BUY THEIR SHARES WHILE THEY UNLOAD HAND OVER FIST.
When there are too many people piled on to a trade, it usually means an imminent reversal will happen. It is only a matter of time. I have been Short USO since 100 and even though it has had some impressive moves up it still will not go over 103 dollars.

We are suppose to buy stocks when it is down, NOT WHEN IT IS UP. Stay disciplined and do not let the wall street jibberish suck you into buying this stock now near its all time 52 week high. It is due for a big pullback. Remember, all the news the media reports ARE AFTER THE FACT. By the time they tell people to buy a stock that means the move has already been made.


2nd - SolarFun Trade.

So last Wednesday I noticed a breakout in Solarfun (SOLF) but did not have enough conviction to jump in on a trade when it was at 17. An opportunity lost because I have subsequently missed out on a 30% move. But what's done is done, this is how I'm setting up for the next move. Keep in mind, EARNINGS for SOLF is coming out on 5/21 morning (so last day to trade it before earnings is Tuesday).



SOLF for the short term is extremely overbought. It has ramped from 12.72 all the way up to 22.84 in a matter of 2 weeks. It went up 53% alone the past 5 trading days.

My hypothesis is should Oil start pulling back next week, alternative energy will also take a subsequent hit. As I've noted before, SOLF is a very high beta stock that can easily give back gains as fast as it gets them. I don't expect it to pull back all the way to 12 dollars. But if the stock pulls back 50% from its recent gains, that would equate to 22.84-12.72 = ~5 dollars

22.84 - 5 = $17.84, which would still be comfortably higher than where its 200DMA is. And if SOLF pulls back to that level it would actually be VERY BULLISH action for the stock.

I think another reason why SOLF went up so much recently is due to Short Covering. Earning reports from other solar companies such as FSLR, SPWR etc have absolutely destroyed the bears. And consequently right now it is causing shorts of SOLF to cover aggressively to prevent themselves from being stuck in the trade.

But the stock has ramped so far up now that it could allow for a "sell the news" result. I am not an advocate of owning a position on any stock into earnings. But if the stock jumps big after the earnings report, I will be all over the shorts. If the stock tanks, I will be a buyer. Keep an eye out for SOLF both long and short... it should be a very interesting, and profitable stock in the near future.


I am currently starting to explore a new method to analyzing stocks by calculating "pivot points". I have a pivot point tool that allows me to calculate Resistance and Support level prices. Still in the process of experimenting with it but after observing its results from a few trades it proves to have some validity and merit. If you are interested in it leave me a comment and I'll tell you more.

All in all, with the exception of the Nasdaq which have confirmed a breakout on the 200DMA, both the Dow and S&P are hitting tops on the 200DMA and is failing to break. Given the option ex week is now done with we can see some big money pulled out from beneath us. If you are still in the market to trade on the long side, be sure to stay disciplined and utilize tight stops on EVERY trade to protect profits. There will come a time again to be greedy and buy hand over fist. The important thing right now is to protect as much of that capital as possible so when everyone is jumping off a cliff once again, we will be there to pick up shares at really low prices.

If you do believe in technical analysis like me, I would suggest strongly to start studying stocks that have either made gigantic runs, or are in the sectors most affected by the credit crunch, and utilize the potential downdraft to short.

Stand fast, and let's make some money together.

-DL