Tuesday, May 25, 2010

The case for shorting EL...still

Estee Lauder Cos, ticker EL, got on my radar February 19 as a potential short. At that time it was still 58.83 and on the way up. RSI was very strong in mid 80s and the MACD indicator looked ready to cross and rollover. A month later at nearly 64 it only looked juicier. Late April I started nibbling via May 55 puts when the stock hit 68 only to have them expire worthless, when it popped again after the flash crash. Monday I got short again via July 55 puts, despite the stock being well off its highs. Here is why I am so adamant of a breakdown:

1. From the chart you can see that every time over the 15 year life of the stock when the MACD has crossed and rolled, and the RSI peaked and rolled, the price has retraced at least 61.8% of the previous up move. This has happened 5 times.
2. Retracement to the 61.8% area from last up move would now take the stock to near the 100day and 200day SMAs.

Although it has dropped from 70 to 57.57 and many think they have missed the short boat, I believe there is potentially still another $17 to be made.

No comments:

Post a Comment