On Short Selling Parameters
There are two basic pieces of information you can use to hone in on a potential short-selling stock. The first is its relation to its 10-day and 50-day moving averages. If a stock is trading under both these averages, it’s under selling pressure–at least in the short run.
The second is the propensity of the stock to open near its high for the day and close to near its low for the day. This indicates persistent distribution, which is particularly evident when a stock pops up on the opening but can’t hold the gain. Such selling is often a signal that there’s a problem with the bigger picture. That’s why we focus on these stocks on a daily basis: If something is wrong, we’ll be there to participate on the short side.
–Jeff Cooper, from Hit and Run Trading II