Option Investor
Market Updates

Selling good news

Printer friendly version

On November 7th, in the 03:00 EST Update on OptionInvestor.com and IndexSkybox.com, we profiled shares of Micron Technology (NYSE:MU) as bullish near the $28 level. The stock had just recently traded a "bullish triangle" pattern and gave hint that the stock was headed higher. This Friday, it will be one month since that commentary and the stock traded the $34 level today, which was our bullish target from November 7th. Today's jump in shares of Micron (MU) to a morning high of $34.49 comes on news that South Korean chipmakers just recently negotiated a 10% price increase in dynamic random-access memory chips (DRAM).

Micron Technology Chart - $0.50 & $1 box

The point/figure chart really shows how "smart money" seemed to find out about today's good news regarding DRAM prices back near the $25 level and how they (smart money) stuck with the stock on the pullback to $25 after a nice run to $30. Shares of MU have traded right up to our bullish target of $34, which was just under major overhead supply of $35. While the longer-term vertical count and bullish price objective of $40.50 is still in play traders long the stock at or near the $28 level have a nice gain going. One strategy is to sell the entire position as outlined, or simply take 1/2 of the "chips" off the table. With the thought of higher DRAM prices in the making, subscribers can now envision the stock conceivably trading the $40.50 level in the future. Keep an eye on Micron (MU) for another buying opportunity near the $30 level.

I'll take mine freshly squeezed

Traders remember the days when stocks would vault higher based on short squeezes. Bears would get caught in a stock that they felt was "overvalued," but the broader market or sector bullishness would have the security they were short moving against them. Such a condition may be presenting itself if XM Satellite Radio (NASDAQ:XMSR). According to www.shortinterest.com, the November 29th short interest on XMSR is 10.3 million shares, roughly 8 days-to cover ratio.

XM Satellite Radio Chart -

In Friday's commentary at 01:00 EST, we thought a close above the $12.12 level could have shares of XMSR "rocketing higher." Yesterday's trading at $10.50 and follow through reversal today gives hint that some bears are about to get squeezed. Subscribers that will jump over to www.stockcharts.com and pull up a point/figure chart of XMSR will see a potential "triple-top" buy signal with a trade at $13. Right now, we're perhaps in the "non pulp phase" of a potential short-squeeze. A trade at $13 may start to see the "pulp phase."

10-year YIELD chart

For equity bulls, they've got to like the reversal higher in YIELDS that they're seeing in the bond market. A nice round of selling is taking place and this will heighten the alertness of bears as they scramble to covers some positions. Those bears that aren't using a disciplines strategy of tight stops are those that will most likely get crushed and squeezed.

Jeff Bailey
Senior Market Technician
Option Investor

Intraday Update Archives