Real Money Charts: February 25th
The following stocks will be featured in my RealMoney column on Monday, February 25th: CREE, SWC, UNH, NEM, RDC and IMA.
The last time I covered CREE, the stock was around $26. Since then, the stock has advanced up to 30% as the massive crowd of short sellers begins to re-think their bearish stance. Over the past couple of weeks, CREE has pulled back slightly on below-average volume. That’s a textbook “flag” pattern, and I’d be a buyer on a breakout above $34.
This daily chart of SWC looks like a U.S. missile in search of a dead satellite. But at some point, this parabolic rally will end…and probably end badly. They always do. But rather than selling now, why not ride it as long as you can and trail the position with a stop that’s just below the 8-day moving average. That’s usually worked for me during those magical moments when I’m feeling guilty about making so much money…but am happy to deal with that guilt for as long as possible.
This monthly chart of UNH shows the big picture. This stock looks really, really toppy and a bearish MACD (Moving Average Convergence-Divergence) doesn’t help matters much. If you think this is a defensive stock, be my guest. But if the bears push it down below support, you might want to try a different defense.
Last week I recorded a video detailing how to discern trends. One of the simple premises was that, if the peaks are consistently above the 50-day moving average while the troughs are consistently below it, the stock is not trending! That’s pretty simple, right? Well, RDC epitomizes that concept, with the stock just swinging wildly within a very wide channel. But until that resistance level is popped by a breakout, I’d still be a seller now, and look to buy down near support. The problem is that the support level is pretty vague — could be at $35 (from the August-November support), or down at $31 (from the January low). But we’ll deal with that later. For now, I’d be a seller.
NEM has been trading in a wide range for a while, and illustrates the same concept as we saw in RDC — a sideways channeling stock. It’s simply not trending. But NEM is close to support, so if you’re looking to buy this gold stock, you’ve got a low risk opportunity now — with a stop just below $48.
IMA had been steadily moving higher along a reliable trendline, which was running beneath the 30-week moving average. When the trendline broke in early January, that was the signal to exit the stock. But that was then…this is now. Has IMA fallen enough to warrant buying? Not yet. The stock still has far too much downward momentum. At some point, this stock will bounce. But why try to outsmart the bears. Just wait until they’re done…then buy.
Be careful out there.