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Wednesday, April 26th 2006

Nightly Update - Short Interest


This is going to be a quick update. The current general market direction is bullish at this time. I think that stocks and China stocks should be over weighted at this time also. In addition, I think the reason why SINA and SOHU had extra volatility is because SOHU delayed their earnings report until after the close. However, SINA is up after hours. Cement stocks have been volatile also, but our cement play, CX had a good day. In regard to commodity stocks, they are hard to play at this time because the commodities are out performing the stocks. I would avoid them for now. There are too many commodity stocks that are lagging. PXLW is not a buy before earnings, wait until they come out. Nevertheless, I believe a good entry for PXLW would be best below $4.50 or near the bottom of the wedge.

I would also like to discuss short interest. Many market pundits have been calling for a market top since February of this year. However, I would like to point out that despite their high short interest, many stocks keep climbing a wall of worry. As you can see short interest is high in SINA, MTH, BMHC & MCHX. Nevertheless, they are higher now than they were in February.

MTH is a good example of this action. MTH keeps going up in spite the increasing short interest month over month. How high will MTH go? Well, it all depends on the respective Fibonacci retracement levels being taken out. Please refer to the noon update. I would like to add that when a falling wedge only reaches the 65% retracement level and fails to move higher, it will then reverse and resume the downtrend. Well, 50% to 65% is in $75.00 -$80.00 range. I can live with that type of profit.

BMHC also has high short interest and it is also in a falling wedge pattern. Yesterday, BMHC got hammered. I view yesterday's drop in price as a capitulation type day. What a relief, because we can now enter at a cheaper price. BMHC did rebound today and I expect it to continue to do so. Finally, I have never known a stock to top when all the shorts have gotten in.

The month over month jump in SINA's short interest is incredible. It is at all time highs. In addition, MCHX is on the illegal short squeeze hot list with 20 days remaining to cover. Let me explain what is happening with MCHX, TZOO and ANTP. The reason why the days to cover starts to increase drastically is because the volume starts to decline to the point that it becomes almost nonexistent. This causes the stock to become dull as there is no one left to sell. All the sellers have left. When volume starts to dry up, shorts then start to cover which in itself precipitates more buying until before you know it you have a new high and so and so forth. Hence the saying never short a dull market.

The broader market futures had an inside day today. The market is churning. Bears are trying to bring the market down, but they are failing. I believe we will get a good stick up tomorrow or the next day. Leadership stocks like ADBE, AAPL, MRVL and SNDK should be overweighed. You can even buy options on these if you want. Options plays are posted on the message board. I think chips should be over weighted. Think "Flying Turkeys" with good patterns. Make sure that when you enter a stock that you know what the pattern is and the time frame for price target. Try not to get tickitis.

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