Sabrient Select Opportunity Virtual Portfolio

August 9, 2010 – The Week Ahead

Last week, I cautioned that the SPY might be confirming a bear flag (or pennant) formation at the same time that the MACD appeared to be rolling over. Instead, it treated the bottom of the pennant as support and jumped straight to the top of the still-forming pennant where it found resistance. It then closed the week by violating the bottom of the pennant intraday Friday before bouncing strongly at the 200-day moving average and closing inside but near the bottom of the pennant.

Will it bounce back to the top of the pennant a fourth time, or will the bearish pennant finally confirm this week with a breakdown? After threatening to rollover last week, MACD instead turned higher, but might be ready to rollover this time.

Since rolling over and selling off strongly in late April, the market has demonstrated all sorts of interesting — and sometimes conflicting — formations. I have identified three different bearish flags or pennants, with a bullish double bottom reversal mixed into the middle of it all.

In any case, there’s no doubt that dips are being bought. I have been tweeting somewhat tongue-in-cheek that junior traders left to hold down the fort have been given instructions from the top brass vacationing in The Hamptons not to let the market crater. Should we take this as the all-clear signal? For my money, it’s better to hold both longs & shorts as the market participants sort it all out.

Last week, I closed two underperforming positions. I bought to close short position CCI after it broke out above strong resistance at $40.00 and held firmly above it. I also sold the final 1/3 long position in XRTX as it has been badly underperforming for the past week or so, and closed the week by violating my mental stop at $12.90.

Open Positions

Going into the week, we have one long position and two short positions.

LONGS:

We are still long half of the original position in Humana (HUM) from $48.75. The stock is demonstrating relative strength once again after a great earnings report, and closed Friday at $50.61. It is rated STRONG BUY in the Sabrient Ratings Algorithm, and carries an Outlook Score of 99.7, a Growth Score of 89, and Momentum Score of 95. HUM offers a desirable combination of solid fundamentals and defensive characteristics. I am moving up the mental stop to breakeven, i.e., I will close this position if the stock violates the entry price of $48.75 on a daily close.

SHORTS:

We are short a full position in First Horizon National (FHN) from $11.23. The stock closed Friday at $11.12. FHN is rated SELL by the Sabrient Ratings Algorithm and carries a Company Outlook Score of 4, Value Score of 19, and Growth Score of 30. Now that the stock has moved in our favor, I am changing the mental stop to a close above Friday’s high of $11.35.

We are short a full position in Goodrich Petroleum (GDP) from $12.70. The stock closed Friday at $13.45. GDP is rated STRONG SELL by the Sabrient Ratings Algorithm and carries a Company Outlook Score of 1. After offering up a poor earnings report, it started to sell off, but then found support from what appears to be speculation. Its chart is showing signs of firming up, but I’m hopeful it will turn back down before violating my mental stop, which is a daily close above $13.60.

Watch List

LONGS:

Some stocks that I have on my Buy watch list include the following:

STX

SKX

RNR

TEO

FRX

GME

ARLP

ECPG

BKI

ACGL