Here We Go Again
Gap-down short opportunities
continue to add up.Â
Banc of America Monday downgraded
MedImmune
(
MEDI |
Quote |
Chart |
News |
PowerRating), warning that U.S. sales of the biotech’s Synagis drug
could slow after the 2000-2001 season. Synagis is used to prevent a common
respiratory tract disease in children.
MedImmune shares gapped down and fell
20 1/2 to 56 3/ on nine times its usual trade. Like last week’s gap-down days in
Intel
(
INTC |
Quote |
Chart |
News |
PowerRating), Eastman Kodak
(
EK |
Quote |
Chart |
News |
PowerRating) and Apple Computer
(
AAPL |
Quote |
Chart |
News |
PowerRating),
MedImmune deteriorated further after opening sharply lower and closed near the
bottom the day’s trading range.Â
By some measures, MedImmune was even
more vulnerable. As of Friday’s close, the biotech was trading above its 50- and
200-day moving averages, both of which were rising. The stock plunged below both
moving averages Monday. That represents a lot of unhappy shareholders, many of
whom remain in the stock now and will look for exits in the days and weeks
ahead. The stock also broke below support at 57 3/4 (see Point A in above chart).
The key to shorting such issues is to
fade the bounce. Some upside reaction is likely before the stock rolls over to
plumb lower lows. Apple, which Friday gapped down 27 3/4 to 24 3/4 on huge
volume, bounced Monday to an intraday high of 26 3/4, than gave up the fight to
close at 24 1/4.
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 extensive lessons in the Money
Management area of TradingMarkets’ Stocks Education section.