Weakening Lear
You can play short candidates much as
you would long breakouts — only in reverse.
With bullish trades, I look for stocks
in long-term uptrends, then wait for the targets to break through a key pivot.
Often the pivot point coincides with the resumption of the long-term
uptrend after a shorter correction. I also want ample evidence that the
underlying company is delivering strong fundamentals.
With short trades, I look for
candidates in long-term downtrends, then I look for the break below a pivot,
preferably coinciding with a resumption of the decline after a shorter-term and
abortive recovery. I also want the underlying company to show signs of weakening
fundamentals.
Lear
(
LEAR |
Quote |
Chart |
News |
PowerRating) is shaping into a
possible short candidate. On Friday, the automotive supplier said it expects
earnings to fall by 18 cents in the second half of the year because of a
weakening euro, strengthening Mexican peso and production cuts in the Ford
Explorer and Ranger. Wall Street had expected the company to earn $4.46 in 2000
, according to First Call/Thomson Financial.
Lear shares fell 1 13/16 to 22 1/2 on
double average volume, bouncing off an intraday low of 21 9/16. To my eye, a
possible pivot point is 21 1/2, the stock’s intraday on July 21 (see Point
A). You’ll note that the July 21 session was a major accumulation day
with the stock advancing on strong volume. A break below that point puts
shareholders who bought at that juncture under water as well as stressing other
weak holders.
All stocks, of course, are speculative
and risky. On any new trade, be sure to reduce your risk by limiting your
position size and setting a protective stop where you will sell your new buy or
cover your short if the market turns against you.