Real Money (February 28, 2008)
Tomorrow’s stocks in my Fitz Bits column on Real Money are: RIMM, PCU, DBB, WST, CTRP, and VAR
After last week’s gap up above the 50-day moving average, RIMM has been consolidating at the higher range. But yesterday’s move eclipsed last week’s high, which implicates additional upside as it becomes more evident that no one is eager to sell this stock. I’d be a buyer now, but would feel a heck of a lot better about it if I saw more trading volume. Over these past few days, it’s been just a bit light.
Over on StockMarketMentor.com, one of my readers was asking about copper — as a short! One name that came up was PCU. Well, this stock doesn’t correlate particularly well with copper, but as I was looking at the chart, I got the sense that PCU is ready to spring higher. No way I’d be shorting PCU now. Notice the tight little “flag” pattern that’s been building just below $115. That’s the same level as the November/December resistance level. So any breakout above that level really clears the way for higher prices. I’d be a buyer above yesterday’s high.
Another copper proxy is DBB, an ETF that consists of Aluminum, Zinc and Copper in equal amounts. While the ETF trades pretty thin, be mindful that ETFs are synthetic — there is no official “float”. If you want to trade ’em, you can buy, sell or short as many as you want. So would I short DBB? Uh, no! While this uptrend can’t last — it’s likely to last longer than many folks think. So just ride the trend as long as you can. Use the 10-day moving average as a reference for stop placement, and sell when it gets hit.
WST has finally broken through $42 after 3 failed attempts. Yesterday’s gap follows the mid-February gap up above the 50-day moving average. The typical sequence of gaps is a “breakaway” gap (where a stock breaks out from congestion); followed by a “continuation” gap (a second gap that signals an increase in interest in the stock); followed by a final “exhaustion” gap (the end of the move that results from overly eager buyers who just can’t sit on the sidelines any longer). We don’t know how far WST is going to run, but from this sequence of gaps, I’d sure want to be a buyer on any type of pause in the move…so long as I kept a stop back below $42.
CTRP took a trip south of the 50-day moving average in early January, but is now climbing back to challenge the late-December highs. This stock has been up 11 of the past 14 days. That’s a stock in need of a rest. The best thing for CTRP would be additional churning at current levels for a while. That’ll provide enough of a base for a breakout above $57.50 — which would be my buy point.
VAR has been trading sideways for almost two months. This is setting up a volatility squeeze that is likely to resolve to the upside. Notice how the 50-day moving average is defining support…and that 50-day moving average is coming increasingly close to resistance. At some point, we’re likely to see a breakout. I’d be a buyer on a move above $54.
Be careful out there.