Tuesday, February 7, 2012

Bank of America (BAC) reaches 200-day moving average

Bank of America finds itself susceptible to a short-term bearish move, already begun today, having come within $.14 of its 200-day simple moving average. The four-year chart below (4 y 1d) demonstrates that the security has, over the short term, consistently reacted away from its 200d-SMA.

BAC, 4 y 1d

Today’s high of $7.99 has other characteristics of a short-term maximum. Not only is it a horizontal resistance point by virtue of being a full integer on a low-value security, but $8 was also an important reversal point in early 2009 and in August 2011.

Switching to the hourly-bars chart (50 d 1h), the past three days’ price action has brought BAC into the resistance side of two steeply-sloping price channels – further evidence of $8 being a local maximum. These price channels are marked below in green and purple.

BAC, 50 d 1h

Fedex Corp (FDX), a component of the S&P-100 index, is likewise at a resistance point on its daily chart. Yesterday’s intra-day high of $95.6 brought the security squarely into the resistance of a well-defined price channel extending to September 2009. Additionally, price is about $10 over the 200-day SMA, a level of bullish sentiment unsurpassed in the last 20 months and a contrarian indicator of a possible bearish reversal.

FDX, 4 y 1d

Moving away from blue-chips – perhaps a laughable designation for BAC which, despite being a DJIA component, is trading at a price/book of 0.38 (per Yahoo Finance) – let’s look at Coinstar Inc (CSTR), a favourite of one of my readers.

The stock exploded today on favourable earnings, but the slightly longer-term, 20-day picture (20 d 5m) is more interesting still. Price halted with today’s closing bell right at support from a modestly-defined price channel.

Moreover, eventual continuation of the rally appears relatively probable due to an abnormally elevated level of short interest in CSTR. Per the most recent available data on Yahoo Finance (from Jan. 13, 2012, so admittedly quite dated), Coinstar has a short ratio – defined as short interest divided by average daily trading volume – of 14. In comparison, other recently-maligned stocks register much lower levels in their short ratio: Netflix, Research in Motion, Green Mountain Coffee Roasters, and Sears Holding Corp. stand, respectively, at 1.3, 1.4, 4.6, and 6.2. Of course, an elevated short ratio can subsequently fuel a parabolic, short-covering-driven advance.

CSTR, 20 d 5m

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