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

February 28, 2008

All three of these shorts are in excellent high reward/low risk positions with all of them being right at their 50 and 200 day moving averages. The best thing about all three of these charts, also, is that they all have a good amount of distribution and red BOP that helps give these charts that extra punch in the mouth that turns them into a real nasty chart that could produce some huge gains if they just work the way they are supposed to–you know the way: TSRA, SGMS, CBEY, AAPL, and GOOG. Newbies, if you do not have a track record of making money on the long side, and yet you think you can make money on the short side, uhm, you might want to think of going to 100% cash. Only experienced trader should even be considering going short any of these below. The smartest newbies will understand that if they have not made a lot of money on the long side, which is much easier to do than on the short side, they are probably not going to do well on the short side. Once you have mastered the long side and can consistently make money and cut your losses like a robot, then and only then is it smart to attempt the other side of the trade. Being short requires you to be more precise with your timing, requires that you take profits faster as it falls, and requires you to suffer through a lot of pain sometimes as stocks short squeeze you out of some big gains sometimes. Bottom line: make sure you can find, buy, and sell for a profit your own longs, first, before trying to short this market. Be careful out there and remember cash is king. For the experienced cash should be high but you shouldn’t be shy with the commodity longs as long as they are in a safe high reward/low risk position.

new short position: PFG

PFG is failing right at the downtrending 50 and 200 day moving average, on very strong volume. This stock topped at the end of December and has been a mess since, selling off on heavy distribution with one selloff being on a huge gap down. The most noticeable thing on this chart is the BOP. The BOP is red, ugly, and nasty. There is a lot of it and that combined with the distribution is a clearly visual representation of a stock that is topping. Cut your loss with a close above the 200 day moving average, if the stock does not move lower immediately.

adding to existing short positions: WYNN CETV

WYNN is failing at the 50 day moving average, on below average volume. This stock looks like it is going to start another selloff but do it on low volume. However, the low volume doesn’t bother me because it has already come off the highs once on lower volume. So the stock has proven that it doesn’t need a lot of volume to drop. It just needs a lack of bids. The red BOP helps make this chart much more bearish than its best friend LVS (which I am also short; the leaders). It would be nice if there was more red BOP and the RS line had negative divergences. Cut your loss with a close above the 50 day moving average, if the stock does not move lower immediately.

CETV is failing right at the 50 day moving average and breaking down below the 200 day moving average, on strong volume. This stock’s reversal wasn’t extremely bearish but it was extremely timely as it is happening with the 50 right there ready to cross below the 200 day moving average. That perfect convergence along with all the red BOP and heavy distribution in the chart since the top in early November helps give this chart that extra bit of ugliness that makes it a good stock to add to my short position. My only wish was that there was more red BOP and that the RS line was leading the price to new lows. If those two events were in this chart, I sure wouldn’t mind loading up a bit more. Cut your loss with a close above the 50 day moving average, if the stock does not move lower immediately.

Last 5 posts in Free Archives Shorts

Three New Short Positions And Two Stocks I Am Adding To My Existing Short Positions For Monday's Stock Market Session - February 29th, 2008
Three New Short Positions For Thursday's Stock Market Session - February 27th, 2008
One Stock I Am Adding To My Existing Short Position For Wednesday's Stock Market Session - February 26th, 2008
One New Short Position For Tuesday's Stock Market Session - February 25th, 2008
One New Short Position For Monday's Stock Market Session - February 22nd, 2008

Posted by Joshua Hayes | Filed Under Free Archives Shorts

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5 Comments »

Comment by starling Hunter

2008-02-29 02:30:02

Josh, I have been reading your chart analyses for about 9 months now. I have developed a deep appreciation for your systematic, disciplined approach.

As a way of developing my skill at chart reading, I’ve started to write up an analysis BEFORE I read yours. The goal is to see if I can identify the same features of the chart that you highlight.

While I’m getting a little better at this each week, I realize that there is still another, more important step: to know how you picked those charts from the dozens (or hundreds) that you examined.

Here’s a specific example: the one and only new short for today, PFG, is is one of 44 in the most recent “Daily Volume Surge” scan.
As I look through those 44 charts, I do not feel confident that I could pick out the PFG as the best of the bunch.

I, for one, would find it very helpful any information on the steps you use to narrow down a list of charts to a smaller set of candidates.
In the meantime, I’ll continue to practice.

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Comment by MauiTrader

2008-02-29 10:01:15

There are two ways: natural talent and experience.

There is simply no other way to pick out the worst from the rest.

But to make it easier–look for a weak close, an intraday reversal, a failure at either 50/200 DMA. ANY stock that doesn’t touch or is not near the 50/200 DMA can automatically be eliminated. So really out of the 44 only half are eligible based on the short needing to be right near the 50 DMA.

But really there is only one way: time. And I think some people have a talent for this unlike others because I was seeing what I needed to see pretty quickly back in High School. I would say by the time I was out of HS, I knew difference between good and bad cup w/ handle. So it is just time…combined with some natural talent. But mostly it is just a byproduct of time.

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Comment by starling Hunter

2008-02-29 13:59:36

Josh, thanks for those remarks and specific rules.

Immediately after writing the comment above, I sat down and examined all 44 charts in detail. My approach was pretty similar to what you outlined. Here’s how I proceeded. In Step 1 I eliminated 27 of the 44 by ruling those where the current price was 8% or more below the 50/200 dma.

I eliminated 8 more by getting rid of theose that did not have strong prior uptrends before the top, that had traded “sideways” for over a year, that had already fallen 40-50% since the peak, or that had not yet topped.

It didn’t take long to reduce the list to 9 which I looked at in more detail. The trick, as you mention, is to have some clear criteria that spell “NO, thank you” and to eliminate many charts on the basis of their not meeting these criteria.

Of the nine that remained, 4 or 5 really stood out, one being PFG and the others being ING, DECK, CVG, and WG. I am sure with a little more practice, I can get the number down even more and do so in less time.

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Comment by MauiTrader

2008-02-29 19:03:13

What is funny is that WG and DECK are shorts today

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Comment by MauiTrader

2008-02-29 19:03:42

EXTREMELY!! IMPRESSIVE!! Starling!

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