Skip to main content

Increased Short Positions in Mallinckrodt Will Fuel Rally (Plus: FL, RH, FINL)

I am very impressed with the bullish divergence between the lower price lows and the higher lows.
Comments

This is not the typical chart story I have been doing, but I thought another look at Mallinckrodt PLC (MNK) would be interesting. In our last story, we suggested it was too late to consider a short position in the specialty pharmaceuticals company. But now, I think the shorts could be run out. How do you spell ouch?

According to www.shortsqueeze.com, the short interest in MNK has increased sharply to 9.644 million shares from 8.120 million -- a significant shift. A good location on the chart is often key to a successful short, in my opinion, and I doubt most of the recent shorts have a good location.

In the updated chart of MNK above, we can see prices are firming toward the 50-day simple moving average. Notice the big surge in volume earlier this month as MNK got a lot of media and analyst attention. Now this is interesting -- the On-Balance-Volume (OBV) line has turned up! A rising OBV line only happens when volume is higher on days when MNK closes higher, which in my book is bullish. Also, I am very impressed with the bullish divergence between the lower price lows and the higher lows on the momentum study from August through November.

I think MNK is poised to rally and the increased short position will only add to the upside.

Nov. 20, 2015 | 10:45 AM

Will Foot Locker's Recent Rise Take a Timeout?

  • The athletic apparel retailer may find support in the $55 area.

Trifecta Stocks holding Foot Locker (FL) shares have been under pressure this fall, turning the short-term and longer-term chart pictures negative.

This short-term chart of FL is interesting. In the chart above, we can see a peak in the On-Balance-Volume (OBV) line in August, which preceded the price peak in September. The September price peak was followed by a decline for FL below its 50-day and 200-day moving averages. Also note that the rate of selling increased since August -- in that we have lower and lower momentum readings in the lower panel. Any further reflex rally is likely to run into technical-based selling at the underside of the 200-day moving average.

After more than doubling, this chart of FL, above, has turned lower. The Moving Average Convergence Divergence (MACD) oscillator has given a crossover sell signal just as prices moved below the 40-week moving average. Key support for FL at $55 is likely to be a magnet from here.

Nov. 20, 2015 | 10:15 AM

Restoration Hardware Chart Furnishing Potential 11% Downside

  • RH looks like it is headed lower to $80 for starters.

With a weakening chart and indicator picture, Restoration Hardware (RH) may have a hard time on the upside moving forward.

Looking at this first chart of RH, above, we see a stock trapped by an $85 to $105 range for the past 12 months. In July, RH made a price peak with a peak in the On-Balance-Volume (OBV) line. RH retested the price highs in early November but retreated quickly. Prices have quickly dropped below the 50-day and 200-day moving averages, with the OBV line breaking to a new low for the move down. The weak OBV line indicates that selling is heavier on down days, suggesting that investors are anxious to liquidate long positions. Unfortunately, we have yet to see a bullish divergence from the momentum study to suggest a turn around.

In this chart of RH, above, we can see that RH has more than doubled, so we have something to reverse. The OBV line is rolling over on this timeframe. The Moving Average Convergence Divergence Oscillator (MACD) and the momentum study are weak. Last, prices are below the 40-week moving average. RH looks like it is headed lower to $80 for starters.

Nov. 20, 2015 | 9:15 AM

Finish Line Shares Are Slowing Down

  • The next chart support for the footwear chain is likely to be around the $10 area.

Shares of Finish Line (FINL) have been under pressure in recent months, but with the break of key long-term support, FINL is not finished declining.

When FINL broke below $24 (see the chart above), the whole chart picture changed for the worse. We have a big gap lower and heavy volume followed by a dead cross of the 50-day and 200-day moving averages. The On-Balance-Volume (OBV) line is pointed down and indicates that liquidation has been the order of the day. The momentum study tells us that the rate of decline has slowed, but FINL has broken through too much chart support (see the chart below).

Note that FINL has broken the key support lows of 2011 and 2012. Looking back from right to left, the next chart support for FINL is likely to be the old resistance from 2009, or around the $10 area. FINL is oversold and might bounce before grinding lower.

For a fundamental view of Finish Line's latest earnings report, check out Chris Versace's analysis at Trifecta Stocks, a model portfolio comprised of stocks that have passed rigorous quantitative, fundamental and technical tests.

Employees of TheStreet are restricted from owning individual securities.