Do You Like To Short? Try This…
After
the wild ride the market has been on lately, I would expect things to
quiet down a bit shortly. I think we may be in for some quiet consolidation or
drifting action. Maybe a little up or down, but nothing like we’ve seen the
last week or two.
Last month I wrote an article
discussing how I thought the best short opportunities were going to be topping
patterns, and described some techniques to help you find them. Since then
nearly every area of leadership in the market has topped out. Therefore, at
this point I would be focusing less on these kind of candidates and more on
breakdowns of low EPS/RS companies. As mentioned above, my belief is that the
market is due to consolidate a bit right now. I believe once this is
accomplished the market will likely break down and start another leg lower.Â
This period of consolidation should provide time for traders to compile a list
of candidates to short should the breakdown occur.
To help compile a list of low
EPS/low RS candidates to potentially sell short, I’d suggest the following:
1)Â Â Â Create
a broad computer scan to compile a list for you. Doing this is no different
than how many people create list of charts to look through for long candidates.Â
For those of you without access to scanning software, the TradingMarkets
Stock Scanner works quite nicely. An example of a scan I might use would
be:
Closing price > $10
50
Day Avg Vol > 100,000 (1000 in the stock scanner)
EPR < 40
RS(12 mo) < 40
Closing Price below 50 and 200 day moving averages.
           This scan came up
with 98 potential candidates to look through as of yesterday.
2) Review Mark Boucher’s
Bottom RS and ER Lows list nightly. This list is full of potential short
candidates and by closely monitoring it you may be able to catch them just as
they’re breaking down (or by waiting for the 1st pullback).
Best of luck with your trading,
Rob
P.S. The recent bounce was
captured nicely by the
Hanna ETF Money Flow System. Those traders who used the strategies and
money management techniques as laid out in the manual would have closed out 3
winning trades last week for about a 1.4% gain on the total Money Flow
portfolio. These trades included 1 long position and 2 spread trades.  While
the market has struggled so far in 2005, the Hanna ETF Money Flow system is up
nearly two and a half percent and working on its 10th consecutive
winning year. For more information about the system click here or email
me if you would like a copy of the six-page introduction to the manual.
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