Tuesday, April 10, 2012

CMG Failed Breakout

Our short thesis is still intact.  We have recently written about going short recently on CMG here and here.

While we originally had called a top at 426, the head and shoulders pattern we spotted as potentially in development did not complete and instead the stock rose up to even greater highs yesterday and today.  However, there was insufficient buying support at these new highs, and the stock failed to hold the new highs.  It ended up crashing down with the markets mid-day yesterday.

Here is the daily chart with notations.

Also, as we had noted in our previous posts, CMG is trying to make it 17 consecutive "up" weeks.  That is insane, especially for a stock trading at a valuation as inflated as this one is.  In the last two weeks, CMG failed to close above the prior week's high, even though it managed to print green candles.  This is significant because the prior 14 weeks, the stock not only closed positive but also above the prior week's highs.  There is significant air below, as this rally started at 320 and has gone non-stop until 427.  If momo chasers and/or institutions begin to sell, and/or shorts pile on, this could get ugly quick.

Here is the weekly chart from yesterday.

Disclosure: Short $CMG

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