Set-ups: Long And Short
The V-shaped rallies in the Dow and
NYSE Comp notwithstanding, this remains no place for the medium-term momentum
trader to go whole hog. The scarcity of quality stocks setting up in valid
patterns argues for staying largely in cash.
That said, there are a few potential
plays for the limited trade. Manpower Communications
(
MPWR |
Quote |
Chart |
News |
PowerRating) appears to be
forming an inverted cup-with-handle, one of my favorite short-selling patterns.
Among the home builders, Centex
(
CTX |
Quote |
Chart |
News |
PowerRating)
cleared its 50-day moving average. You can keep your eye on this one to see if
its completes the right side of a base.
Household International
(
HI |
Quote |
Chart |
News |
PowerRating), a
provider of consumer credit, home equity and auto loans, is
three weeks into a base and closed Tuesday 3.5% off its high.
Sketchers
(
SKX |
Quote |
Chart |
News |
PowerRating) appears to
be breaking down. Watch this one for possible pullback and formation of a
shortable Ledge or base failure pattern. I’d like to see it breach sharply below
21 before attempting the counter-move rally. The set-up, which was developed by
Market Wizard and U.S. Investing Champion Mark Minervini, is described in my
lesson, ETF
Trading Tactics, Part 3: How To Short ETF Breakout Failures.
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,
check out the Money
Management area of TradingMarkets’ Stocks Education section.