shorting DRI (addition), lowering FSLR stop

Despite Monday's big market rally, many divergences remain in effect and of concern.

Silver is not at new highs, while gold is. The DJIA made a new high for the year, however the S&P, NASDAQ, Utilities, and Transports (making non-confirmations per Dow Theory), as well as the French, English, Chinese, Japanese, Canadian, and Australian markets, just to mention a few, are not at new highs for the year.

Certain sectors, as illustrated Thursday, remain bearishly divergent. Financials and restaurants, for example. Admittedly some indexes and sectors are close to marking new highs, however most are not close at all.

Was Monday's action the start of a new leg up in the rally, or will we see another general reversal? The rally since March is still missing a significant correction, so we remain most comfortable being cautious.

All we can say for certain, is that there are few, if any, compelling reasons or indicators arguing for entering, or even holding, longs at these prices.

We are paying special attention to volume. As was the case Friday and Monday, volume is quite light on rally days, and the primary trend remains down, with its resistance not much above the current levels of the DJIA. The bear market downtrend allows for a high circa 10450 at present, as seen below.



Other indexes and lagging sectors resemble this NASDAQ graph, which illustrates the bearish implication of the year's rally trendline being broken recently and now back-tested.





First Solar, FSLR has continued to exhibit remarkable relative weakness during the market rally of the past few days. We can't take this for granted however, as it is oversold in the short term thus prone to a sharp reversal, though it's still greatly overvalued in our estimation.

We've been in this position less than 3 weeks so far, and we now lower our stop on FSLR from $181 to $124.70 which would net us a profit of 19% if hit. We chose this level as per the chart below. More aggressive shorts may wait until the stock moves above $130 or $135, but we prefer to keep our stop tight at this time and guarantee a big fast profit if it is hit, then we'd seek to short FSLR again if it rallies much from there.



To get to that level, FSLR would have to rise approximately twice as much as it did Monday, when it posted a relatively weak gain of 1.3% vs. the COMPQ's gain of nearly 2%. For such a beaten-down stock, such weakness doesn't suggest it will rise much, if at all, even if markets continue the week with spectacular rallies, but we can never be certain so we hedge by lowering our stop significantly.


We balance the above prudence with a somewhat aggressive move in which we'll short DRI, Darden Restaurants, should it reach a level of $32.75 which is just slightly above its Monday closing price of $32.68

If triggered, this will constitute a 2nd short position in DRI as we shorted the stock in January of this year and that position remains open.

Given rising unemployment and taxes, and decreasing consumer credit, we are not bullish of restaurants in general or those under the Darden corporate banner in particular.

We can't resist the relative weakness. Since March 18, DRI is flat while the NASDAQ composite is up 48% and the DJIA is up 38%. Monday DRI was up only a single penny, while its parent index was up nearly 2%.

Most of all, we're compelled by the technical markings seen on the chart below.



Not shown on the chart above is that the stock currently trades below its 200-day moving average and below its 200-week moving average, both technically bearish.

If this link is accurate, insider activity doesn't seem particulatly bullish either.

Regardless, it's what the charts reveal that guide us most so we offer a 2nd short position at $32.75 If filled, we'll cover this position should the price reach $41 for a potential risk of 25%. Our existing position remains without a stated stop level.

We've done well shorting restaurants in this blog in the past, marking gains of 17% in CAKE in 1 month and 19% in CBRL in 6 weeks in 2008. The 3rd time has not been a charm however as we are currently down roughly 14% on our existing DRI short, though we note that the NASDAQ is up a far greater 36% during that time so we feel relatively good about the position and now attempting to add to this short.


In the news :

Fitch: U.K. Most at Risk of AAA Downgrade.

"In May, Standard & Poor's Corp. assigned the U.K.'s triple-A credit rating a negative outlook, saying it would make a decision on its rating after the new government makes its intentions clear.

The U.K.'s public finances have deteriorated sharply since last autumn with the country experiencing its deepest recession in decades. Output has contracted for six straight quarters and the numbers out of work have climbed steadily since mid-2008..."


An informative post by Karl Denninger on The Market Ticker :

Don't Do It! (Cashing Out 401ks)

"Six out of 10 employees in their 20s took the money, compared with one-third of those in their 50s, according to the study..."

The above article ties in with our recent post, Pensions a Potential Trigger.


We also found this video on his site. Amusing yet disgusting, this is a must-see !

"Which should bother you more, that half aren't even there, or what happens when they're not?"








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