Windy City Ready to Topple

Today I found a short that I’m willing to endorse wholeheartedly. On Friday short sell Chicago Mercantile Exchange Holdings (CME).

I'm not merely suggesting CME because I believe that the stock market as a whole will drop, although this would hit CME extra hard. Quite simply, this stock has way too much room to fall.

As today’s article in Fortune Magazine states:

“The Merc's highflying share price makes us wonder whether there's a cheaper way to get exposure to the booming market for futures, options, and other financial esoterica. Goldman Sachs, for example, has transformed itself from a traditional investment bank devoting most of its resources to underwriting securities and advising on mergers into arguably the most sophisticated trading machine on Wall Street. Goldman's earnings growth over the past four quarters exceeds the Merc's -- 88% to 31% -- and yet Goldman's P/E is nine, compared with 48 for Chicago.”

Let’s see what the charts are telling us:

The daily chart shows two resistances lines just above the current price. Also the Slow STO has been high for too long, and will eventually follow suit as the arrows show. The RSI is getting too high but the MACD looks normal.

The weekly chart is more interesting (and as always, more important). The MACD has been sinking for almost six months, while the stock price has stubbornly been holding on. This never turns out well for the stock price and we will eventually see a reconciliation of the two. Finally, On balance volume is relativly lower as the stock goes higher.

If all of this technical gibberish means nothing to you, then by far the greatest argument that the CME is at or near a top is the sheer amount of shares sold by insiders. The Chief Technology Officer as well as the Chief Executive Officer sold half of their total shares last month. Directors, Officers, and members of the General Counsel are all selling. You don’t see this amount of insider selling in a short three month period very often.

Again, if you're not sold on the "hard landing" argument for the market, then at least stay away from CME.