NLY Watch

Whoa, NLY! What's with the 3.6% intraday price drop on a more than double volume spike? Annaly Capital Management Inc., the high-dividend real-estate investment trust, is often prone to sudden swings. But -- a bit unusual -- there's no news to justify the move.

	trend	adx	psar	pps	macd	macd trend	sto	sto trend
NLY $17.15

The tale of the signals has been unrelieved bear phase for six days. Only the fast stochastic, today, is showing a mild flash of bullishness as it peeks above the 20-line, clinging to that level like a Kilroy doodle.

The rumor mill was focused on talk that the Obama administration was about to forgive some mortgage debt, as reported by Reuters. The thinking goes, if mortgage debt is forgiven, then NLY gets shorted in the payback of its mortgage-based holdings.

But the chart really doesn't show unrelieved gloom. The price dropped, but it also retraced, coming very close to bouncing up off of the 200-day moving average. That suggests that $16.70 is a strong level of support.

That's not surprising. With a dividend yield of 15.85%, paid quarterly, NLY holders are fairly motivated to hang on to their shares rather than trying to day-trade the stock.

On the Person's chart, NLY has been trading below the weekly midline since the bear signal kicked in. Today's downward move came close to bouncing off of the lower pivot.

Person's Table

	pps	pps open	upper pivot	lower pivot
NLY $17.15		$17.44 jul29	$17.99 +4.9%	$16.74 -2.4%

The stock has been trading in a narrow range since May. To qualify as a bullish breakout, the price would need to move above $18.37. Today's move could count as bearish breakdown, and further declines would strengthen that view. Today's low of $16.84 is the new downside reversal level.

The 20-day simple moving average (sma) and 200-day exponential moving average (ema) are also key levels.

Reversal Levels

• $18.37, +7.1%
• $17.68, +3.1% (20-day sma)
• $17.15 <== You are here.
• $16.84, -1.8%
• $16.70, -2.6% (200-day ema)

The stock has been tracing a huge sideways pattern since 2002, between around $21 and $11. Now that's what I call a swing-trading opportunity, for the very patient trader.

I like NLY as a dividend play, and in fact have it in my portfolio. A persistent drop below the 200-day ema would motivate me to exit for awhile, and the volume spike that accompanied today's decline increases the need for vigilance, i my book.

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Disclaimer

Tim Bovee, Private Trader tracks the trades of a private trader for his own accounts. Nothing in this blog constitutes a recommendation to buy or sell stocks, options or any other financial instrument. The only purpose of this blog is to provide education and entertainment. No trader is ever 100 percent successful in his or her trades. Trading in the stock and option markets is risky and uncertain. Each trader must make trading decision decisions for his or her own account, and take responsibility for the consequences.

Abbreviations:

• psar - Parabolic Stop and Reverse
• adx - Average Directional Index
• pps - Person's Proprietary Signal
• ma20 - 20-day moving average
• macd - Moving Average Convergence-Divergence
• sto - Fast Stochastic

About the glance: The colors indicate the state of each signal.

• trend: Determined by the 5-day moving average, green for up, red for down, yellow for sideways
• adx: orange for above 30-up, blue for 20-down, purple for in the middle. Red is most prone to whipsaws
• psar, pps, macd: green for bull mode, red for bear
• sto: green for overbought, red for oversold, yellow for the neutral zone.