An Ugly Day With Beautiful Results

July 6, 2001
Eddie Kwong

I could not believe it.
I found only one upgrade this morning from a major brokerage house, but I saw
more than 20 stocks had been downgraded. It did not look good. The futures
markets were also suggesting a lower opening. It would be an ugly day, and I
decided to focus on short-selling opportunities.Â

Immediately after the open, two stocks popped up on my screen — Emulex Corp (EMLX)
and Brocade Communications (BRCD).
Apparently, both of them were downgraded by CS First Boston to hold from buy,
and they started the day with a gap down. Unless the market reverses to the
upside, both stocks are good candidates for short selling.

Here is a five-minute chart of Emulex Corp. A nice short-selling moment came at
9:55 a.m. when the stock broke down below its intraday low. By 11:05 a.m., EMLX
was trading below 30.

Brocade Communications required a
different method to short. As you can see on its five-minute chart below, the
stock did not pull back at all until it hit near 34. This price level coincided
with the low set in 6/19/01. At 10:25 a.m. the stock broke down and quickly lost
another two points.