Monday, June 22, 2009

Gaps Filling and To Be Filled?

I am a big believer in gaps on charts being filled. It does not have to happen, but just from observing over the years I think this has a 98% success rate. The question is timing; literally gaps can fill in days or years.... or anything in between.

I am going to post 3 "gaps" here, one is filling today. 2 are interesting potentials...

We sold most of our James River Coal (JRCC) Friday as it had turned back to $18 but below key resistance levels... I said I wanted to buy it on strength over $19. And to that I exclaim "whew" - it is down 14% today alone. I am going to get back a bit of what I sold Friday just because this gap, from early May... is now filled. However, this is one damaged chart and unless reflation makes a miracle recovery will need to be sold as it approaches $18 again. p.s. where are all the "reflation" fans with their thesis the past 5-7 days? Incipient world recovery not driven by Chinese restocking? Oh yes, it was just a speculative burst of stock jockey and program trading that had nothing to do with fundamentals.... err, a weak dollar play.

Next is a name we don't own but lamented missing [May 27, 2009: A-Power Energy Hires CFO - The Stock that Got Away]... speculators ran up all types of alt energy stocks regardless of potential, and A-Power Energy (APWR) whose main business has nothing to do with alternative energy, is lumped in with them. (they do have a wind turbine business that is tiny but what American investors associate them with) They had a not very inspiring earnings report and then a surprise convertible debt offering a few days later - nice combo to knock your socks off. Not like the management could of mentioned the debt offering right at the earnings press release - that would be too convenient for investors.

Generally institutions like to hedge their convertible debt purchase with a short of the stock, and then other institutions pile on to short knowing this. The stock has been crushed, going from $13 to $7.50 in just a handful of sessions. Today it has broken its 200 day moving average. A great bargain? Perhaps - but look at what I found... a nasty gap. Down at $4.60ish. Do you short that? Gosh it takes nerves of steel as this name moves 10-15% a day at times. But it is not looking good for APWR fans. If we get down to sub $5 I'll probably buy it for the next go around of "ignore fundamentals and wave hands wildly about talking oil to $80 and China will bring the whole world back based on a $500B stimulus package". Frankly management has been a constant disappointment with unkept promises but speculators who will drive it up again at some point in the future don't care about such details. For them its "oil up, I must buy wind related. Chinese even better."

Last we have Research in Motion (RIMM) - we avoided it into earnings and its now fallen from $86 to $68 in just over a week. Today it gapped down below its 50 day moving average and sits just above its 200 day.....which should be a good support for such a widely held stock. When this market bounces, I expect it to put in a cursory rebound at least. But when I pull back the chart I see some danger ahead... there is a massive gap (ironically from their PREVIOUS earnings) down there at $49... and then a small one just the day before @ $46. Impossible to fill? A nearly 50% drop from that $86 print just behind us?

Nothing is impossible! But for RIMM to take that sort of swoon we're going to have to see at least mid 800s on the S&) if not lower. If this name breaks below the 200 day I would not be surprised to see a freefall; I might partake myself.

So 1 gap filled, and 2 gaps at egregious distances to go. Let's keep an eye on from afar to see how it develops.

Long (10 shares) Research in Motion; James River Coal in fund - no personal positions

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