REITS failed yesterday as bears took control across the board. Broad based selling created bearish candlestick patterns on all major market indices suggesting lower prices in the near term.
Take cues from bearish patterns that triggered within the last couple of weeks, such as Freeport-McMoRan Copper & Gold Inc. (FCX), Southern Copper Corporation (SCCO), State Street Corp. (STT) and Triumph Group, Inc. (TGI). Those names retested resistance after triggering and turned down on heavy selling yesterday.
The next play is to short other names that have been in distribution mode over the last several months and recently triggered. Below are 5 short ideas in Patriot Coal Corp (PCX), Alpha Natural Resources Inc. (ANR), AO Smith Corp. (AOS), Monsanto Co. (MON) and Manpower Inc. (MAN) which all fit the distribution criteria and are close to triggering. Most of the distribution patterns found in these names is the Head and Shoulders pattern, which is statistically speaking of the most reliable reversal patterns.
Chart 1: Patriot Coal Corp (PCX): There is a cluster of support, circled and highlighted on the daily chart below, which if broken will result in a substantial move lower. The support comes from the 50-day Simple Moving Average (SMA), the intermediate bullish trendline and the neckline of a bearish head and shoulders reversal pattern. The 50-day SMA was violated yesterday and if there is a confirmed move below the neckline, which is at $22, then the pattern will trigger.
Trigger: Confirmed move below the neckline which is at $22, aggressive traders may anticipate a trigger and short at current prices with a stop above the $24.25 pivot high. Target: $15, Protective Stops: conservative: close above the recent pivot high at $24.25, aggressive: confirmed move back above the neckline.
Chart 2: The comparative relative strength of PCX versus SPY already broke support which may be a warning of the potential break in price.
Chart 3: Alpha Natural Resources Inc. (ANR) is another coal name with a similar bearish head and shoulders pattern as PCX. The intermediate bullish trend line and 50-Day SMA were already broken on January 31st.
Trigger: confirmed break below the neckline, which is currently at $52.50. Target: $36, which was obtained by measuring the height of the pattern and expanding lower from the trigger point, by the same distance, Protective Stops: conservative: close above the 50 day SMA, aggressive: either a confirmed move back above the neckline, or a close above the recent pivot high at $55.17.
Chart 4: AO Smith Corp. (AOS) is trading above a 22 month primary bullish support line, drawn on the left chart. This trendline is extremely important based on the presence of the three key characteristics that increase the validity of a trendline: 1) the slope, 2) number of times touched and 3) duration of a trendline. A break of this trend line is extremely significant and would signal the end of the uptrend.
A symmetrical triangle is outlined on the right chart. A confirmed break below the lower boundary line would trigger the pattern and would coincide with a break of the primary bullish support line, adding weight to the bearish evidence.
Trigger: confirmed break below the lower boundary line, approximately $39.50. Target: $31, generated by measuring the height of the pattern and expanding lower by the same distance. Protective Stop: 1) a confirmed move back above the lower boundary line, or 2) a close above the recent pivot high at $40.83, whichever is higher.
Chart 5: Monsanto Co. (MON) recently broke it’s intermediate up trend line signaling an end to the uptrend. In addition, a bearish head and shoulders pattern has been developing since the beginning of the year.
Trigger: Confirmed break of the neckline, which is at approximately $69.35. Target: Minimum expected price objective is $61.50, measured by the height of the pattern. Protective Stops: aggressive: confirmed move back above the neckline, conservative: A close above the high of the right shoulder, which is $72.61.
Chart 6: Manpower Inc. (MAN) has been in a sideways (basing) rectangle pattern since mid-December. Five days ago, the 50 day simple moving average was broken with authority, and then on Monday it was retested from below. If there is a break of the lower horizontal support line, which is at $62, then the trade triggers with a minimum expected price objective of $55.
An early warning of a potential downside trigger can be seen from the comparative relative strength (RS) of MAN versus SPY, which already broke support.
Trigger: confirmed break of the lower horizontal support line, which is $62. Target: $55, Protective Stops: confirmed move back above the support line.
1) GS – http://www.businessinsider.com.au/uptrend-over-gs-has-the-answer-2011-2 – just triggered with decent volume. One more close below neckline will further confirm.
2) STRI – http://www.businessinsider.com.au/no-more-sunshine-for-stri-2011-2 – Confirmed yesterday with percentage confirmation.
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Disclaimer: The information contained herein is not guaranteed. This is not a solicitation of any order to buy or sell. This material is based upon information that I consider to be reliable, but I do not guarantee its completeness or accuracy. Assumptions, opinions and recommendations contained herein are subject to change without notice, and I am not obligated to update the information contained herein. I have positions in the securities mentioned. This communication, including any attachments, is for the exclusive use of the intended recipient(s) and/or the intended recipient’s designees. Any use, retention or dissemination by a person other than the intended recipient is strictly prohibited. If you are not the intended recipient or designee, please notify the sender immediately by return e-mail and delete/destroy all copies of this communication.