Let Dead Cat Meow
The bottom fell out of Spring PCS
Group Wednesday after it warned of a third-quarter profit shortfall. But don’t
rush to short off the news. The stock is due now for the dead cat bounce which
would stop out the premature short.
Look instead for the pullback to the
upside, then signs of a stall and resumption of the downtrend. For examples of
these scenarios, check out my lesson, Sell
‘Em
Short: Three Patterns for Bears.
Sprint PCS Group
(
PCS |
Quote |
Chart |
News |
PowerRating) dropped 7
5/16 to 33 1/2 on nine times its usual trade. That’s institutions heading for
the exits, and no one came to the rescue. Rather than bouncing well off the
session low, the stock closed near the bottom of the day’s trading range, a
bearish sign. Also note the negative moving average crossover.
The company said growing competition and its decision to
drop some unprofitable customers would hurt its third-quarter subscriber growth.
The market rewarded Dell Computer
(
DELL |
Quote |
Chart |
News |
PowerRating) after the company announced its
entry into the business-to-business marketplace arena. The leading direct
marketer of computers said it will bring its online customers onto the Dell
Marketplace network. Dell also plans to to bring its customers’ customers and suppliers into the network.
The stock gained 2 1/4 to 38 9/16 on heavy volume, a handsome short-term move
but not enough for the intermediate-term player looking for momentum trades. The
stock just last week notched a new 52-week low. Dell shares must be presumed
under the weight of hefty overhead supply.
I prefer to see stocks overcome their
mid levels before looking for entry points on a correction-recovery pattern as
well as their 50- and 200-day moving averages. Overhead supply is the amount of shares in
the hands of shareholders with paper losses. Wall Street calls these buyers weak
holders because they tend to look for exits and sell into rallies, blunting
further share-price progress. You can find a stock’s mid level by
summing the pre-correction high and the post-correction low, then dividing the
result by 2.
If you’re looking for an earlier
entry, then pick a resistance point as a pivot. For instance, one possible pivot
would be Dell’s intraday high of 54 11/16 set on July 18 (see Point
A in following chart). That would also get you above the stock’s
50-day and 200-day moving averages, assuming Dell does not plumb deeper.
