Northwest Nose-Dives
Price pressures have tamed many a high
flier. Take the airline industry. Northwest Airlines, Reuters reported Tuesday,
will try to raise its cargo fuel surcharge. Not a good sign when the competition
won’t play ball. Then you must choose between margins and market share.
Shares in the Northwest Airlines
(
NWAC |
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PowerRating)
fell 1 3/16 to 26 7/8 on volume of 1.6 million shares, twice its usual trade.
Minneapolis-based carrier has tried twice before to raise the surcharge. This
time the company will try to raise the surcharge from 10 to 15 cents per
kilogram on all North America-origin shipments to Asia and Europe, effective
October 15. The two prior attempts were supported by U.S. airlines United
(
UAL |
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PowerRating)
and American
(
AMR |
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PowerRating) but collapsed when non-U.S. rivals declined to match.
The stock has followed through to the
downside after breaking support at 31 3/16 (see Point A
in chart). Notice that the stock closed bearishly near the bottom of Tuesday’s
range. No sign of institutional support stepping up to the plate. That’s the
kind of break that I like to see.
I don’t believe there’s anything magic
about moving averages, other than the fact that other people tend to use them,
so I look at them. Some of the weak holders may look for the stock to make a
stand at the 200-day moving average. Wherever a pullback to the upside comes,
that’s your clue to look for the stock to stall and break lower again, raising
the pain on the weak holders.
That’s the idea behind shorting off
pullbacks as well as Jeff Cooper’s Lizard pattern, both discussed in my lesson,
Short: Three Patterns for Bears.
All stocks, of course, are risky. In
any new trade, reduce your risk by limiting your position size and setting a
protective price stop where you will sell your new buy or cover your short in
case the market turns against you. For an introduction to combining price stops
with position sizing, see my lesson,
Risky Business. For further treatment of these and related topics,
you’ll find a mother lode of lessons in the Money
Management area of TradingMarkets’ Stocks Education section.