A trader reserves the right to change his mind.
Back on Feb. 25, I liked the looks of the LendingTree (TREE) chart. There was an attractive setup for a relatively new name with momentum and a big short interest. The stock has pushed over 20% higher in just a little less than two months, but that in itself doesn't put TREE at risk here. It's the current setup that puts my Earth Day honorary at risk.
Currently, we have TREE's stock price running sharply higher, and while we have nice symmetry in the rising lows, the resistance line appears to hold a lesser angle. This is creating a rising wedge pattern, which sides with bears more than bulls. This one is more subtle than the one that formed at the end of 2015, and one could argue it is a channel, but I don't see it that way. Furthermore, we have the commodity channel index coming off an extreme overbought reading, which is a print over 200. Often, but not always, these types of extreme moves indicate at least a temporary exhaustion when they retrace. Reversals tend to happen pretty quickly, so we should know before the end of next week whether we are in for consolidation from the exhaustion or a much larger retracement.
The CCI isn't my only focus along with price. I note a bearish crossover of the slow stochastics while just barely in overbought territory. This has been bearish in the past, but it is fair to note we were barely overbought. Then again, that didn't help in January 2015. A similar setup can be seen in the RSI as was seen in the CCI. The three of these confirm trend and momentum are waning. Price is hitting support, but a close under $58, especially on consecutive days, should set up to test at least $55 on the downside, although I think $53 would more likely be in the cards and the target for more aggressive traders. A close over $61 puts this stock back into the bullish camp.
While we remain over $58, there's no bearish confirmation, so TREE remains a ready-to-act stop, but do nothing right at this moment. Given we are less than 1% over the breakdown level, it wouldn't take much for a short trigger here. Due to the high short interest, the utilization of options would be preferred ... if TREE had them. It doesn't, so this one remains out there for the highly leveraged long portfolios or more aggressive traders.
Seriously, I couldn't think of a more appropriate ticker to use for Earth Day. But at this point, I'd prefer to buy a tree and plant it in the ground rather than buying TREE right now and planting it in my portfolio. There is just a little too much risk right here for me to like it.
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