How To Short An Oversold Market
Looking to the indices, on Tuesday, the Nasdaq opened
weaker and sold off hard in early trading. It found its low fairly quickly
and began to claw its way back up. However, the selling resumed late in the day.
This action has it closing poorly and right at its 50-day moving average..
The S&P put in a somewhat similar performance. This
action puts it back below its 50-day moving
average.
Looking to the sectors, virtually all of technology looks
like it has the potential to make another thrust down from either First Thrusts
or topping formations (double tops, head and shoulders tops, inverted cups
etc…). This includes (but not limited to): biotech, software, computer
hardware, semis, and telecom (except wireless). Outside of tech, the cyclicals
remain weak and also look poised to continue their break down. As does gold.
So what do we do? Tonight (Tuesday), my
database has generated more transitional short setups than I have seen in
months. Combine with the aforementioned poor sector action and sure seems that
the obvious play would be on the short side. However, since the market sold off
on Tuesday instead of rallying (like I thought it would), it’s now further back
into the oversold column. This could make shorting a little dicey.
Therefore, look for shorting opportunities but keep it light and focus on issues
that have pulled back (i.e. those that aren’t oversold like the indices). You
might also consider balancing out the potential positions (i.e. hedging) with a long side trade
in the index shares if they show signs of reversing.
Looking to potential setups, for those with big ones*,
super volatile Chinese Internet provider Netease.com
(
NTES |
Quote |
Chart |
News |
PowerRating) looks like it
has the potential to resume its recent slide out out of a First Thrust.
Northrop Grumman
(
NOC |
Quote |
Chart |
News |
PowerRating), mentioned Monday night, still looks poised to resume its meltdown out of a
pullback (as do many other stocks within this sector).
Best of luck with your trading on Wednesday!
Dave Landry
P.S. Reminder: Protective stops on
every trade!
*trading accounts
“….your book is like an investing bible to me, and I thank you very much for writing in a simple straight forward style that even a novice like me can use….”
Thanks Much,
Cliff A.
