The Day that Was - December 14th 2007

Posted: December 15, 2007 at 12:10 am by Chuck · 2 Comments

As John Murphy (renowned technical analyst) said in his nightly commentary, "don’t count on Santa Claus" for a year end rally. The situation unfolding within the markets continues to deteriorate. Over the weekend I will post some more thoughts on the technical’s and the events of today. But at this time the downward pressure is mounting. Those who were saying we would hit new highs this year are quickly losing their chances, for both the days remaining grows shorter and for the technical indications that the market is indeed rolling over.

A reader wanted a chart analysis of Priceline (PCLN). And the chart is shown below. Some notes on PCLN:.

PCLN has 38.3 Million shares outstanding, and currently has 7.2 Million shares being held short. This is a very high ratio
On November 29th Credit Suise issued concerns about Priceline’s margins.
On December 10 Fidelity Investments (FMR LLC, mutual funds) cut its exposure in PCLN from 15% down to 9.7%
On November 28th Rose Ronald, CIO of Priceline sold $2,334,450 of stock.

The low share float on Priceline is what makes it move quickly and many low float stocks quickly run up on momentum, this is one of them. Over the past 4 months, while the price of PCLN has been rising, the money flow has been declining. A divergence which is a leading indicator to a shift coming. If you want to trade PCLN on the long side (which we would NOT do) then you would buy when the price breaks over $121.00.

To play on the short side you enter a short position on the move below $109.00. There is already a substantial short interest piling on top of PCLN right now as many traders see the same technical divergence and that it is also over valued in a declining market. The chart action suggests that PCLN will not break to new highs unless there is some kind of positive news between now and their next earnings report on February 12, 2008 to trigger the shorts to cover.

For us, we see this as a potential fast moving downward short play if it fails $109.00. A play on a break above $121.00 on the long side is possible but any pullback to below $115 would be a signal to ‘get out’