CRA looks to have been correcting back to its 10 day ema, which has been good support on uptrends and strong resistance on downtrends:
askresearch.com
Friday's candle was a narrow body with a tail that just touched the 10 day ema. Stochastic crossed over going down, but OBV is headed up, and MACD continues to signal buy. So, there is a divergence in technical indicators, but when this has occurred previously, stochastics proved to be the more accurate indicator. TA would suggest therefore that CRA is headed down.
Add to this the fact that the "news" is not news at all. It has been known and anticipated for months. It is not a case of "buy on the rumor, sell on the news", because this has not been a rumor. The only question, really, is exactly which day they would announce, and whether or not the HGP would be part of that announcement. An affirmative answer to the latter question has been anticipated for some time.
I think some further clues can be gleaned from the relative number of bulls vs. bears, given that two things generally hold true in the market: 1) The market will do whatever is needed to make most investors wrong; and 2) The vast majority of options contracts (probably 80% or more) expire worthless.
There is not much short interest: only 2.5% of the float is short. This suggests to me that, other things being equal, there is very little resistance to downward price movement. Downward price movement will create far more losers (i.e., those holding long positions) than winners (i.e., those holding short positions), at least in regards to those holding shares of the stock.
But what about options long and short positions? According to ASK Research, for July expirations there are 5,278 open call positions, and 2,880 open put positions. Of the open call positions, 62% are currently in the money, while of the open put positions, only about 5% are in the money. So, at first glance at the open put/call interest, there would appear to be a lot of upside resistance (there's already a lot of profitable call positions), while there is little downside resistance (there's not very many put positions that are profitable). Add to that the fact that there are almost twice as many calls as puts, and this downward pressure becomes more important. Specifically, there are 1,994 open call positions which are not in the money, while there are only 137 open put positions which are already in the money. Thus, to maximize the number of contracts which will expire worthless, the stock must trade down some. But how far?
Looking a little more closely, there are clusters of puts sitting at $90 and $100 which numerically account for 57% of the open put interest (1648 contracts total). These will represent levels of downward resistance (i.e., solid support), since the market will try to make these expire worthless. There are also a lot of open call contracts (894) at $140 and $100 (880 contracts). These levels ($100 and $140) should represent upward resistance. The open put interest at the $90 level is 1102, which should therefore offer strong support. The open call interest of 894 contracts at $140 should offer fairly good resistance, but the open call interest which is right now out-of-the-money is fairly well spread out, so upward resistance will probably not be that strong.
So my take on all this is that the short-term price of CRA is headed down, but will find support at about the area in between the 10 and 20 day emas, which would be around $110, or at worst, the area where there are a lot of open puts, which would be $90.
The put/call ratios change, of course, and become more important as expirations approach. If short interest picks up, call interest drops off, or put interest picks up, then the stock will tend to move higher. But collectively I'd say the primary force on CRA's price right now is down in the short term.
All IMHO...........
Walkingshadow
Disclosure: I'm very very long CRA, but not because of any of the above. I also think CRA is a good trading stock, and if it gaps up hard at the open, I will probably look to short it. If it sells off hard, I'll look to go long at the 10 day ema, even longer at the 20 day ema. But either way, you have to be ready for a quick exit, CRA's volatility being what it is.
WS |
