Two New Short Positions And Two Stocks I Am Adding To My Existing Short Positions For Friday’s Stock Market Session

January 31, 2008

Just like I said last night, I prefer cash to being heavily short down here. Therefore, I think we should continue to keep our new shorts small until this follow-through (IBD is not calling it–I am even though it will fail) by the Nasdaq and SP 600 fails. This rally could keep on going for a while but considering the amount of distribution in the market combined with the lack of huge volume on today’s move I doubt it will last too long. So new shorts should be small and new longs should be small until a clear trend is in place. Right now this wild intraday volatility that is leaving the market in a state of confusion must be dealt with with caution. Since we are in a downtrend from the highs in October/November and still below the 50 and 200 day moving average, I believe the next leg down will be down again but until we move lower we could rally a bit more and go sideways for three months before rolling over. Tops take a long time to come about. That is why history has proven that the best shorts come five to seven months after a market top. That is when past leaders make their biggest, least volatile, and fastest falls. So remember that when you are about to load up on that AMZN short. Just to let you silver readers know, I am covering all of that stock. It looks like it has bottomed and speaking of bottoming out–have you seen LEN?

new short positions: K ZNT

K is putting in a nasty intraday bearish reversal for the second day in a row, right near the 50 day moving average, on very strong volume. This chart is very ugly considering it is supposed to be a safe haven in a rough market. Instead it looks like it is in for some rough times as the stock is selling off on very heavy distribution under the 50 and 200 day moving averages with BOP continuing to stay below that zero line in the negative yellow to red zone. There is nothing to like about this chart. Cut your first loss with a close above the 50.66 level and your final loss with a close above either the 50 or 200 day moving average (it is up to you), if the stock does not move lower immediately.

ZNT is breaking down below the 50 day moving average after failing to get above the 200 day moving average, on extremely strong volume. This chart is not as ugly as K but the stock has been in a slow steady downtrend off the early 2006 highs that has seen this stock do to much backing and filling. The way the weekly chart looks, with all the distribution building as it goes along, combined with the way the price is setup with the 50 and 200 day moving average right behind it makes this stock look ready for a nasty breakdown. Cut your first loss with a close above the 50 day moving average and your final loss with a close above the 200 day moving average, if the stock does not move lower immediately.

adding to existing short positions: PSSI BF.B

PSSI is rolling over, after a very big breakdown, on strong volume. PSSI has recently broken down through both key moving averages on very strong volume with BOP going red. The stock was unable to rally back to the 50 and 200 day moving average before failing, again, but the lack of gains and the low volume on the rally make it possible that we are not going to get a rally to that point. This rollover is not as weak as the initial breakdown but the potential reward is still very large compared to our risk. Cut your loss with a close above the 18.04 level and your final loss with a close above the 200 day moving average, if the stock does not move lower immediately.

BF.B is breaking down at recent support, on very strong volume. This is another food stock that is also a short tonight (K) and it is red also (but not as red) with a lot of recent distribution the past month and ugly red BOP to go along with that selling. The stock was not really that ugly until this month when the breakdown below the 50 and 200 day moving average came on higher volume with BOP going red. The stock isn’t that ugly but when you look at a weekly you can see that the big boys are selling a lot of it compared to what they bought on the way up. Cut your loss with a close above the 66.82 level, if the stock does not move lower immediately.