The RSI is in STONEWALL NOSEBLEED territory at 75. I therefore decided to test the reliability of this indicator by selling short 5,000 shares of the stock at $27.62. This is the first time in my life where I have ever sold any shares short.
01/30/2013 13:56:51 Sold Short 5000 PFE @ 27.6201 138,090.40
Short-term sentiment: Strong sell
Long-term sentiment: Hold
For years I have avidly followed the Relative Strength Index (RSI) and have found it to be a very reliable short-term trading tool. I have noticed that for Pfizer, most major rallies end when the indicator gets to the low 70's and hardly any of them get beyond RSI 75. The highest closing reading seen in the last six years was the 76.2 at one point last year.
I am not at all a trader but I decided that the next time I saw an RSI near 75, I would sell some shares short and I just did that. I like to go with the odds and the odds are that a pullback of reasonable proportions is imminent. We'll soon see if I am right.
I'm not being the least bit emotional. I waited very patietly for the stock to hit a certain overbought level that has been the death knell for virtually every Pfizer rally in the last six years that has gone this far.
How high is high and when has a rally simply been overdone? RSI is the best measure that I have ever seen for determining this and RSI 75 is virtually as high as things get. When I sold short, the index was right at 75.0; now the reading is at 73.9.
This is the second straight day for there to be a closing reading above 70. The record in that regard over the last eight years has been four consecutive days in the 70's. As I mentioned in my previous post, I believe that a tradeable decline is imminent and likely started in today's last hour or two.
I rarely agree with you and now is no exception. I am only bearish on the stock short-term as RSI has gone into nosebleed territory and a decent pullback appears to be imminent. However, I also know that every single year starting with 1982, the annual range on a closing basis as measured from the low close of the year to the high close of the year has been no less than the 23.7% seen in 1988. Besides that year, there have been only two other years in the past 31 where the annual range was less than 25% (ranges in the 24% area were seen in 2007 and 2012).
Seeing how Pfizer is holding like a rock, it would be most surprising if the stock were to go much below $25 this year (the current closing low is the $25.85 seen on Jan. 3). And if $25 is going to be the low, odds are very good that the high close will have the numeral 3 as the first digit. When something has worked 31 times out of the last 31 years, my money is going to be that we will see a 32nd consecutive occurrence. If the stock fails to close above $30 this year, it would mean that there is a crash or semi-crash coming down the pike or that this will be the first year in 32 for the range to be substandard. I am not looking for either of these things to happen and I definitely DO expect to see $30 before the year is out even though the stock would in my opinion be overpriced at such a level.
At yesterday's close, the RSI was at a lofty 71.8 with the intraday high being 73.5. I'm still looking for a good-sized decline where I will profit nicely on the short position that I put on at $27.62.
I am only temporarily out of 70% of my Pfizer holdings. The stock outperformed my expectations on the upside and any rolling at the time of the dividend would have been very substandard. Better to get out for a week or two and then get back in at lower prices. I'm still planning on a final cashout of no less than a million.
By the way, is this a new handle for you? I don't remember you ever calling yourself detractor-04 before.
So; What is the rate of interest the broker is charging you for loaning you 5000 shares? 4%. and what is the accrual rate for the divy you will have to pay come next payout date?
You did call the broker, I hope.
I'm amazed that you would post your ignorance for all to see. First of all, there is NO accrual when it comes to stock dividends. I would be responsible for paying the full quarterly dividend if I happened to be short at the time the stock went ex-dividend but if I have covered by that time, I don't owe a penny.
Secondly, I'm not borrowing any MONEY from the brokerage; only stock held in Street name. If I had borrowed MONEY, I'd pay the brokerage call rate in the 8% area to compensate the firm for the fact that had they not loaned the money, they could have invested it themselves. But there is no compensation for usage of shares held in Street name since there is nothing useful that the brokerage can do with it.
Did I call the brokerage? Of course not - I have been in the stock market for 50 years now and I know a lot more than most brokers do.
I'm here to teach and to inform and you can now consider yourself to be educated in these important matters.
At the end of the day yesterday, I did avail myself of the opportunity to scrape up four dimes and a penny - or $2,050 - before the two massive $10 brokerage commissions. Not a bad little payday for five calendar days on an investment that took $27,620 to margin.
Rule 1 is don't short div payers unless you cover before ex-div date. I don't see big move here unless entire mrkt moves and then this might be safety trade. Better with options as they are very cheap now
I didn't short until the day that the stock went ex-dividend. I covered five calendar days later for a $2,030 profit after commissions on a $27,620 investment (the amount of margin availability that it took to margin the 5,000 shares sold short).