Not bullish on GNK as a company, or shippers as a group but the technicals and good ole fashion common sense make GNK a good trade for the first few days or weeks of 2011.
GNK fell apart after getting shredded by sellers at the 200 day moving average retest back in early November, but a couple of contributing factors to the sharp reversal we saw were: a weak overall market in mid Nov, falling -actually FREE falling-- baltic dry index (really tells you NOTHING about the rates being negotiated currently in the industry, but unfortunately this sector of stocks will closely correlate to the BDI), and some bearish technicals--mainly the bearish butterfly pattern that emerged.
So what has changed? Not much--but sometimes you dont need a "change" for a trade--you just have to understand why a stock went down, and more importantly WHEN those shorts might start getting out, and potentially start a chain reaction short squeeze. With a short interest around 14/15% last time I looked, the main ingredient is certainly present. Now are we at a point where shorts may start to get out, and inspire other shorts to cover, or even better, start taking out the shorts' stop losses and cause a "reverse flash crash" type RALLY of 7-8% in a day or two?? GNK was an EXCEPTIONAL stock to short in early November. You had a retest of the 200 day moving average from below--ie classic support turned resistance, and an obvious place to look for a reversal of the little bullish move it made in October. But the bearish butterfly pattern, in my opinion, is what really took this fella down to the dreaded 52 week LOWS hall of shame. Now, trust me, I was short GNK from around 17.25 or so, the price target I was looking at was $13.75 or so....basically the bearish butterfly will complete to the 1.27 fibonacci extension of the rally thats reversed....in this case, the move started at $14.65 (august 2010 low) and ended at 18.08. The 1.27 fib extension (found by subtracting 14.65 from 18.08, multiplying the result by 1.27, and subtracting that result from the 18.08 reversal point) gives you a target of 13.72, showing you where I got my ballpark profit taking (short covering) price level.
So GNK got below $14 finally on Wednesday, I believe we got down to 13.88 or so, and sure enough, the profit taking began. I actually had a market limit order in to cover half my position at 13.99, so I in fact assisted in the short covering frenzy that really picked up some steam as the afternoon went on. Fortunately I was able to cover the other half in the after hours not much higher to lock in a nice near 20% gain on that trade, but my point is I'm obviously not the only person sitting on a nice gain from shorting GNK---shoot, the guys who shorted when this thing was in the 20s or near 30 are looking at 50-60% gains now! So the risk reward has really changed for the shorts in my opinion, again, speaking from my own trading agenda.
Finally, another bullish technical aspect is that the entire move down from early November is looking more and more like a falling wedge, which typically is a bullish reversal in the making. and FWIW, yesterday was the first day since the wedge began to form that the stock closed above the upper limit of the wedge--and on volume about 50% above the daily average number of shares traded....all in all, looks like you can start building a position in GNK down here in the low 14s, preferably as close to that 13.72 price as possible.
I'm going to open a small position in the February $15 call options, below 50 cents thats a winning trade--this stock can get back up to $16/16.25 faster than you may think.
GL to all, not a strong buy in my camp, but valuation is decent, technicals look like the stock wants to reverse, and the high short interest could be the perfect catalyst to get this DUD moving upward again.
agreed, a moot point it is. I do hope you're long and enjoying this move, especially this morning. Up over 2% already on strong volume. In my opinion, this stock will be back near $30 in 2011, maybe higher. Yes, I really just said that. As an example, SAC Capital opened a >5% stake in 2010 above $16, and as a follower of their trades/investments, its not uncommon for their largest positions to double and/or triple in 12 months or less. If they were extremely bullish above $16, they obviously believe they'll be selling above $20 at a minimum.....cheers buddy, here's to hoping we've seen the bottom here.
OK, thanks, I see where you're coming from now. I used to use OHLC (Open High Low Close) bar charts and they are a little easier to see some patterns. I pretty much use candles now, and disregard most shadows (I call them tails too), concentrating on the solid bodies. Once in awhile, like on the Nov 10th high at 18.08 I pay a lot of attention to the shadow, because it clearly was what I call a topping stick, big time (same obviously can apply in reverse on the downside).
I think where we don't see things the same way either on the bars or candles is that its always been suggested to me that I draw my upper trend lines from the HIGH point of the solid body, regardless of whether its an open or close number. I draw my lower trend line from the LOW point of the solid body, again regardless of whether its open or close.
You say tomato, I say tomahto, I guess its all in how we individually interpret, and we each have obviously developed a methodology which works for us. My way gets the breakout one day after your's, when I draw the upper trend line from the top of the body on the 9th thru the top of the shadows on the 7th and 13th of Dec, through the top of the Dec 22 body at 14.73 and into the Dec 30 body where I see my breakout.
Looks like a moot point now. This was an impressive day... a high volume reversal off a HORRIBLE BDI reading that started to take it down into mid morning, then all of a sudden whoosh. A big up move on big volume on a bad news item always gets my attention.
Volume makes the mare run.
Thanks and good luck.
Just a quick followup to my original post here, I'm primarily a short seller, not a long trader. I was able to nail this long trade for folks because I knew, as a short seller of this stock, WHERE I WAS GETTING OUT of that trade, and obviously I wasn't the only one looking at the low 14s/high 13s price area to cover my short, because we've seen several days of buying on high volume since my post last week. My Feb 15 calls have doubled in a week, and I'm actually not letting go of them just yet. Its a very small position for me, only 30 contracts (3,000 options) so I'm not overly concerned if the trade moves against me with so much time before expiration. I think GNK in the very short term still gets above $16 so I'll wait for that level to hopefully be selling these calls bought at 45 cents for $1.30-$1.40 each. Call it greed, call it what you want, thats how I trade--defined price targets. So many would say its greedy to not take a 100% gain, but if my target was 16 and I obviously saw SOMETHING thats working, there's still alot of money on the table in this trade.
Hope all that read this were able to make some $$ here, GL to all.
While I agree with some things you say, what charts are you using? I'm using StockCharts and no matter whether I use log or arithmetic scale, draw the upper trendline from the top of the solid body of Nov 9 or the peak of the topping stick at 18.08 on Nov 10, its easy to see the bullish falling wedge, but my upper trendline, which has to run thru the HoD of 14.73 on Dec 22 in either case, doesn't intersect with yesterday's candle... now today could be a different story if this 20K sitting at the bid at 14.23 holds and they move it up.. but yesterday? Not that I can see.
try drawing the wedge using closing prices only....
one of the drawbacks of candlestick charting is that it creates a lot of noise, since candles include EVERY SINGLE intraday high and low that printed. Hey, I use candles myself, so no denying the obvious benefits, but I've learned to draw patterns, especially trend lines, using several methods to get a better overall picture. One method includes every high/low, in other words, every candle must be contained w/i the trend line. A second is to draw trend lines excluding all tails of candles and only using the bodies. This second is particularly useful when a long reversal candles either starts or ends a trend (this applies to gnk). The third method is to actually get out of candle charting and draw the trend line using a normal mountain or line chart. Note, I only do this third AFTER having seen the same trend line on a candles chart---I do not recommend this third method be used alone, because you will certainly not get the total picture.
anyhow, try that with GNK, and you'll see why Wednesday's close was the significant candle you needed to pay attention to, and how I got in ahead of the 4% move in the stock. If you reduce the noise of a candlestick chart trend line just a tad, you'll see that GNK was actually sitting ON TOP of the upper trend line for over a week, it just could not CLOSE there. It kept closing near session lows 12/23, 12/27, 12/28...then by closing close to the daily high on 12/29, it looked likely to have further upward momentum short term.
that being said, this 14.50-14.60 area is the neckline of a head/shoulders pattern that GNK broke through in mid Dec. Sure enough, we failed there on Friday, so it will be interesting to see the price action if/when it gets back above 14.50 this week. A head/shoulders top typically involves a break of the neckline, then relatively soon, a retest of that neckline from below. The price action on that retest is VERY useful in forecasting the next large move. If the stock fails here and then closes below 14.24 again (current low close on weekly chart), it will retest the 13.88 52 week low, and possibly sell off to the $12/12.50 area. On the other hand, a break out above the head/shoulders neckline is often a major bullish reversal that would strongly confirm the other bullish technicals I've been posting about.
Good analysis. One additional factor to consider is that tax loss selling has probably contributed to the recent weakness. That's over at the end of the day today. Additional fuel for a potential short covering panic next week.
If you are willing to remain invested for at least two or three months at a stretch you have a better chances of making some money on this stock. The MMs usually try to shake out the new entrants and those who bought at the bottom. So I am a little careful here and did not over invest. Unlike Drys, the management of GNK so far have not done anything at the expense of shareholders. I hope they keep it that way.