Sell-Off Rings In Gap-Down Shorts

As always, this
deep into a bear, I’d be looking over my shoulder for signs of a market turn,
but until proven otherwise, if you’re going to trade the medium term, the trend
is south. Bad news and down markets
Tuesday scared up a fresh set of gap-down short prospects.

Siris Satellite Radio
(
SIRI |
Quote |
Chart |
News |
PowerRating)

gapped down and fell 36.7% on analyst downgrades and ahead of earnings news. As
you can see from the following chart, the stock was already in a major downtrend
before Tuesday’s sell-off. The damage from Tuesday should bring added pressure
on remaining shareholders.

Gap-down shorts are
distinguished by a severe gap-down move on heavy volume. The stock must close in
the lower half of the day’s range as well as close below its 50- and 200-day
moving averages.

In a gap-down short, the
trader waits for the stock to do one of two things in order to enter. You short
if a gap-down short stock falls below the intraday low of the gap-down day on
the following session. If the stock pulls back, you short once the downtrend
resumes, keying off a break below the intraday low of the prior session. A
possible example of the latter case could be Acxiom
(
ACXM |
Quote |
Chart |
News |
PowerRating)
. The stock
gapped down on Monday after an overnight warning that March 31 fourth quarter
operating net would come in between 10 cents and 12 cents per share vs. First
Call’s consensus estimate of 36 cents. It pulled back on Tuesday.

Commerce One
(
CMRC |
Quote |
Chart |
News |
PowerRating)

gapped down 27.6% on analyst downgrades.

Onyx Pharmaceuticals
(
MNXX |
Quote |
Chart |
News |
PowerRating)

gapped down 30.7%, providing another gap-down setup. It was the stock’s second
straight day of heavy selling.