Establishing A Short
A lot of traders say that
shorts in general trade differently than long side positions.
I tend to agree with that camp, especially when the market has been in an
established uptrend. It can be difficult at best to ‘fight the market’, but if
the classic break of supports and technical patterns present themselves to you
intraday, it might be worth trying on a new pair of shorts, after all.
In today’s trade, on some rumors of an earnings
miss within the subsector, the Chinese portal stocks started to ‘pull back’
precipitously. The group has been one of the strongest of the year, and quite a
few of the individual issues weren’t far removed from their respective 52-week
highs. That being said, my initial instinct was to wait and see if technical
supports could hold in some type of intraday reversal pattern, such as a TrapDoor.
One of the strongest stocks in the group,
Netease.com was my first choice to look for reversal patterns as the 20-day EMA
was holding within a daily consolidation. The stock was also setting up in an
intraday pattern that was ‘in the spirit’ of the classic TrapDoor. If you look
at the 5-minute chart below, the edge for this trade was conceivably there as
the second doji bar at 13:35 took out the prior bar’s highs.
In my opinion,
taking the trade long out of this pattern setup off a technical support level
carried sufficient edge, but I personally didn’t put the trade out to our
members as this trigger was being elected…Why, you ask? More than anything
else, I think it was a ‘layer of discretion’ that kept me from posting the trade
as a long reversal. In this case, I think it had mostly to do with the fact that
the broader markets are giving mixed signals right now, which lends itself to a
more cautious, and hands-off approach to selecting trades.
With reversals, for
instance, I’m more inclined to take the same intraday setup that presented
itself in Netease, but on a stock that has broken harder on the daily chart (
i.e., to the 50 or 200-day EMAs for instance). This doesn’t mean I wasn’t still
looking, but in this particular case I was looking for one more confirmation bar
to confirm an actual pivot low. This ‘mentality’ also had me thinking that if
the stock ‘couldn’t prove itself to me’ as a long, then a break of this support
level should make it a strong candidate for shorting.
A couple of minutes later, as supports were being
tested and looking prone to failure, I posted that NTES was breaking intraday
consolidation supports, as well as the 20-day EMA. This ‘fast alert’ within the
TM room was followed by downside in the stock of more than 1 point in the next
few minutes.
After the stock established its lows, a new
consolidation formed that was finding resistance at the level that had once been
support. At this time I wrote up a ‘formal’ alert within our Alerts, for a
possible second shorting opportunity.
13:56:02
Intraday Setup Alert
Netease.com (NTES)
has broken lower in sympathy with the Chinese portal group on ‘earnings
rumors'(within the group) hitting the tape intraday. This action has the
stock consolidating below the 20-day EMA as it tests the prior session’s lows.
Aggressive shorts might be considered below intraday range lows of 63.30 – 63.35
in anticipation of a further price break, and retest of daily range lows. NTES
is off 3.55 at 64.
Shorting this market hasn’t been done with the
greatest of ‘ease’ lately, but if you wanted to ‘net’ some edge from the other
side, Netease.com was one of the better candidates in today’s trade.