Similar setup
August 8th, 2005 by BWV
Fluor reported so-so earnings this evening.. and traded down 3-4 points after hours. It’s going to gap down in the morning. Becuase of the sector, I’d only play it to the long side at that point.
The chart above is CIB, a consumer-focused bank in lovely Colombia. In this case, it was a different corporate event last week that caused the gap down (something merger related, but the specifics aren’t so important). Regardless it made for a very nice play for any savvy morning dip buyers in there.
I am going to look for a signal to go long FLR tomorrow fairly early, likely after 10-15 minutes of trading. I’ll look to buy an opening range breakout higher, meaning watch it for 10 minutes, and then buy as soon as the stock trades to a new high for the day. Stop would be placed at the existing low on the day so far.. so I prefer a relatively “tight” first 10 minutes.. less risk.
General market-wise.. Today was unbearably quiet. The Fed announcement at 2:15 tomorrow will keep trading subdued again until it’s behind us. Having sold off pretty hard into this number, I’m hoping to see some minor morning panic, and a decent reaction technically to the Fed release. After the now 3-day pullback, that scenario would probably make some individual stock charts become very inviting, so I’d be stoked if it occurred.
As noted a few days back, I was not surprised to see the recent selloff in the indices.. though the exact timing is always extremely difficult to guage. My vocally cautious stance on the markets versus the $0 P/L earned by that opinion illustrates a truism of professional trading: It’s a lot easier to be right than to make money.
As of now, making money on the short side still requires catching a countertrend move. However, the Homebuilders, REITs, and other real estate-related stocks have received the brunt of the recent selling. Also, Ten Year rates are threatening the mid 4%’s, up 50 bps from lows a few short weeks ago.
Those stubborn, vocal, contrarian (not to mention now-tormented) short sellers the have yelled “bubble” about the homebuilders, REITS - and most anything in fixed-income - have gotten their clocks cleaned for the last 3 years. But now, at least on the rate side, even dedicated bond Bears from the very beginning of this Fed hike cycle seem to be “accepting” these “permanent” low rates. Have you heard the words “permanent” and “low rates” mentioned in the same sentence this year? I have.. with a litany of “new paradigm” reasons.. foreign buying.. productivity.. etc. “it’s different this time.” OK.
Fact is, I hear far less chatter nowdays than way back in 2002-2003 (while managing Kentucky Bank’s bond portfolio) about how rates would make their “big” move higher any moment now. Even in my limited experience, I’ve noticed these moves seem to have an insidious way of happenning when “nobody’s looking” (or at least not talking about it in the media). For that reason, I believe a big move in the Ten Year Treasury is not out of the question. I’ll post a chart this week.
The builders, with hard selling off of new highs, look shortable on a bounce in a few days. Unfortunately, Barrons did a big negative piece on REITs & builders (nothing new) this weekend. The final top of this mighty multi- year homebuilder rally simply cannot, possibly, no way, no how, be marked by yet another “real estate bubble warning” magazine cover.. can it?
As bonds & builders have been market leaders.. I must keep an eye on ‘em.
