short trade in CYBX

Today the broader markets broke the fuck out, unrelentingly. CYBX was not paying attention, instead choosing to hang around listlessly under it’s 5 day MA. I posted on twitter yesterday evening that CYBX formed an evening star pattern on the daily charts. The evening star pattern is a 3 candle pattern consisting of

1. long white candle

2. small candle closing above 1st candle

3. long black candle opening under candle #2 and closing under midpoint of candle #1

These patterns (particularly after uptrends) tend to reliably signal reversals. Moreover, CYBX is way oversold. I took the short trade about 5 hours too early today. First of all, I am a total idiot for shorting anything today, when there was easy money to be had in a number of names, particularly Citigroup who was just itching to explode higher. I almost bought it at 3 (could have made like 8% or some shit in a day), but instead decided to stick with my bullshit “plan” in CYBX. Here’s the CYBX chart I posted to chart.ly yesterday:

The timeframe is not wide enough on this chart, but there’s actually really long term potential support/resistance around 17. Thus, I said to myself “short on a break of 17.” Did I follow my own advice? Of course not. Instead I prematurely shorted at as I saw CYBX break hard to the downside on small volume around 10:15 and got an undesirable 17.08 fill. No real damage was taken though, with a close around 17.18. And still, this will likely break down hard to 16.65, 15.76, or 14.88. If CYBX couldn’t even finish in the green on a bull-tarted day like today, it has no hope during broader market weakness. Unfortunately, it moves slow as fuck, and is not very interesting. But I need to work on my patience anyway. There is not one stock I like on my scans for tomorrow. I am going to sit and do nothing, while watching CYBX bleed out.

UPDATE: I’m no longer in this trade.  Hasn’t done much of anything; currently sitting around 17.12 at 1PM on Friday.

status of charts posted on twitter

I intend to post interesting charts on twitter the night before each trading session. Last night in my scan I saw bullish reversal opportunities in $DEI and $JBL. You can follow me on twitter here:

Both names would have made a decent day trade, with JBL currently at 7.23 +0.20 (2.84%) and DEI at 8.65 +0.30 (3.47%). Current time is 3:20 PM.

Here is the JBL chart I posted last night:

Not only did a bullish engulfing candle form on the July 13 daily charts, but it was engulfing a hammer that bounced off trendline support. I conjectured that there was upside to the 50MA, which is currently 7.62. This still seems like a reasonable target.

My other idea was DEI:

Again here we have another bullish engulfing pattern on the July 13 daily charts. In this case there is a zone of support and we’re clearly bouncing between the trendbox marked in purple. I speculated upside only to 9, with a smaller possibility to 10. As I’m sure you can tell by now, I’m primarily a swing trader.

exiting the AIG trade

I closed the entire AIG position around 10:16 AM on Tuesday morning for 14.82, a 37% gain from my 10.79 entry. I was hoping for a gap up to the low to mid 15s; we gapped to 15.67 which worried me. Sure enough, at this price volume rapidly diminished between 9:30 and 10:00. At 10:00 I said to myself “put a stop at 15.29 and walk away (this was right underneath the lows of the first half hour). Of course, I didn’t listen to myself and watched as we rapidly made new lows. I dumped in a panic at 14.82. The reason early weakness worried me is because we would drop under VWAP and likely get trapped, probably closing with a gapped higher doji pattern on the daily. Then things could go in either direction in the next few days, and I’m not about to gamble away a +30% gain. Here is AIG on a 1-min timeframe during the past 2 sessions, with VWAP.

riding the AIG short squeeze

Last Friday a beautiful piercing pattern developed in $AIG with obscene volume after a brutal 8 period pounding.

I jumped in at 10.79, because by definition a piercing pattern must open under the prior candle’s close and close halfway into the prior candle’s body. That midpoint was 10.9, but I ended up with a slightly better fill due to volatile trading. We hit a high of 12.44, which could not hold. Note that if we had closed above 12.35 we would have had a bullish engulfing pattern instead of a piercing pattern. We ended with an 11.74 close.

Bulkowski’s ‘The Pattern Site,’ which I linked to above, calculated that piercing patterns generate a successful bullish reversal 64% of the time and bullish engulfing patterns generate a successful bullish reversal 63% of the time. I liked these odds, especially considering the 90.28 million shares traded on Friday (compared to 60.5 million on Thursday). In retrospect, I wish I added more to this position on the end-of-day dip to 11.74. That was the last opportunity to buy in under 12.00. After hours on Friday quickly stabilized above 12, and pre-market on Monday quickly stabilized around 12.3. Today we gapped open to 12.51 and have been chilling around 14.25 all day, closing at 14.57.

I don’t usually pay attention to stochastics, MACD, or bollinger bands; however, they all show that this move has room to the upside.

Bollinger bands can’t predict future price movements, but here the bands reinforce the notion of an extremely oversold security. Note that we closed within the lower band on the same session the piercing line pattern formed. MACD is telling us that downward momentum is waning, and it appears a bullish MACD crossover above the 0 line is within the realm of possibility. Stochastics are telling us that despite two vicious up days, we are still in oversold territory.

As the title of this post implies, I chose this trade because of the short squeeze. The most recent short interest data is from 6/30/09, reported on nasdaq.com. At that point (the first day of the vicious sell-off), short interest was 262,011,225 shares. Recall that AIG went through a 20-1 reverse split, so dividing that by 20 we get 13,100,561 shares. The previous short interest recording is from 6/15/09, tallying 11,438,312, so we have a 2 million share increase of shorts before the sell-off (it can be assumed many added shorts in the 8 day sell-off). But the volume increased enough after the reverse split that the ‘days-to-cover’ ratio (short interest divided by avg. daily volume) actually decreased from 4.1 to 3.43. That ratio is an estimate of how long it would take shorts to cover their positions based on avg. daily volume. I wish I knew the current short float, but it’s not updated continuously. The volume has been incredible during the past 2 sessions, and so far I have had no reason to close this position, despite being up a cool 35%.

I am going to assume I’ll close it within the next 3 sessions, likely Wednesday. My original target was 18.25-19, and I expect to close plus-or-minus $1 of that target. Price action, especially gap opens, will dictate the exit.