It Was a Great Run for Cadiz, But... (CDZI)

At first glance, today's action from Cadiz Inc. (NASDAQ:CDZI) just looks like a little bad luck, or a well-deserved break following a very strong, uninterrupted runup. The longer one looks at CDZI, however, the more red flags start to wave... red flags suggesting a substantial pullback may have just begun.

For those not familiar with it, CDZI is a for-profit water and land management company. Specifically, Cadiz Inc. owns more than 9000 acres of agricultural land, and also owns land in the Mojave Desert that could supply billions of gallons of renewable groundwater to water-thirsty California. It's not a terribly sexy business. In fact, it's downright simple. What the company is doing is highly marketable and much-needed though, and represents a significant long-term opportunity. In fact, the apparent transition to a net-opportunistic stock from a net-liability situation in the middle of last year is what's driven the 85% rally since the mid-August low.

The compelling story, however, doesn't change the fact that CDZI is overbought right now, and itching for a dip. In fact, the shape of the Cadiz chart today says this major reversal is already underway.

The nearby chart offers a couple of major clues to that end. For starters, notice the volume surge that accompanied yesterday's huge bullish move. This has all the markings of a blowoff top... sort of the "last hurrah" for a rally that burns the last of its fuel up in one amazing burst of buying. The second clue that suggests CDZI has already topped out is today's reversal move, which at one point had nearly erased every bit of yesterday's gain. Although Cadiz Inc. has pushed a little bit off its lows for the day, it's still deep on the hole, and deep in the hole on a day that the stock was already quite vulnerable to some profit-taking. The fact that the majority of traders chose the profit-taking route speaks volumes about the undertow here.

Almost as telling of a reversal effort officially being underway is the sheer height and shape/direction of today's and yesterday's bars. Yesterday's bar was very tall, starting near the bottom of the bar and rallying all the way to the top. Today, traders started at the top of the bar, and the sellers have worked hard to keep Cadiz at the low end of today's range. Sometimes the two-bar effort is called a traintrack reversal, though its official name is a marubozu pattern (even if this isn't a perfect one). Whatever it's called, it all says the point in time between yesterday's close and today's open was the point in time we went from a net-bullish to a net-bearish environment. Let's take the clues at face value.

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