The Public Is Heavily Short. So Here’s What I’m Doing…
This morning I am going to get
into a few longs and shorts.
It’s fascinating that the public is heavily short.
Record short interest on the NYSE right now. It reflects a skeptical attitude
among investors. The public is usually wrong. Specialists on the floor are light
the dark side. Still irrespective of that action it pays to be long stocks that
are advancing and short those that are in decline. It pays to play both sides of
this market especially at this point in the cycle. The cyclical bull that began
in March of 2003 is old and tired. That is what the bulls are up against. It
doesn’t help that 57% of advisors according to Investor Intelligence are
bullish. That sentiment gauge is not as reliable calling a top as it is
signaling a bottom. It doesn’t help right now that we are in the season of
weakness. August and September have been the two worst performing months of the
year over the last 15 years. Here are support lines for the market. If the lines
hold then the mild corrective action will be over and a bottom formed. If the
following numbers fail then the corrective action will be more serious. The DJIA, SPX and COMP and MDY
have to hold 10500, 1215, 2130 and 698 respectively. Given the time of year the
chances of a high quality rally happening are slim. Here are a few positive
chances long and short:
Abbott Labs
(
ABT |
Quote |
Chart |
News |
PowerRating) 45.83
This stock failed to cross 50
on a close last month and the trading has been distributive ever since. The
stock is in distribution. I am currently short the shares and will add to the
position into resistance in the 46-47 zones. That is the place to sell short. I
am prepared to increase the position on a drop below 45. This is a low risk endeavor. A rise above its 50-day moving
average and consider it a bad trade and move on. The odds favor success. View
the chart and notice the beginning of a decline. That is the essential reason to
stay on the dark side with this one.
Comverse Technology
(
CMVT |
Quote |
Chart |
News |
PowerRating) 25.69
Comverse Tech is on the verge of breaking out to new levels. It has a positive
weekly chart and hints at a move above 45 in a favorable market. I would not buy
the stock unless it crossed 27.60. Cash in on the swing of momentum it will
display if it can cross that level on a close. It serves to take out the top of
its base. Today it acts like dog meat in a rising open. If the open is strong
then this stock ought to be in sync, but it is not at least not right now. I like
it above 27.60.
Pfizer
(
PFE |
Quote |
Chart |
News |
PowerRating) 25.38
Here
is a low risk short. It doesn’t require much skill to figure that out. Not much
skill at all. Almost feel guilty selling PFE short. It’s a low risk short
because the attraction to own shares is missing. The big drug companies offer
moneymaking chances on the short side of the coin, the dark side. Shorts are
tails and longs are heads. Pfizer trades like the tail of a timid dog. It is in
decline. Stocks that are in decline ought to be shorted. It currently trades
below all key inflection points and is enhancing its current decline by angling
toward the low of 21.99 made on 12/04. Lousy stock in a lousy group. Place the
stop at 27.15
Wyeth
(
WYE |
Quote |
Chart |
News |
PowerRating) 46.01
The
best of a lousy group and why not be long this issue given the nature of trade
in the stock? The current pace of trade indicates an uptrend that ought to
persist. If it has the strength and demand
then the buying power ought to grow stronger lifting it to higher price zones.
That is the looks of this instrument right now. It is the way it currently
trades that would compel one to pyramid on existing shares given a cross above
46.55 on a closing basis. Nice pair for those into pairing would be short PFE,
long WYE.
The Ryland Group
(
RYL |
Quote |
Chart |
News |
PowerRating) 71.10
I am
shorting the homebuilders right now. Sell high buy low. How’s that for an
original thought? Really this is ripe for the picking. I am short a small basket
of builders right now. They are done for a while. How do I know this? I just
view the pace of trade and let the movement of the stock indicate the leanings.
It leans south. It just dropped below its 50 day moving average so the
intermediate term is negative. It still has a good long-term chart. So RYL is in
intermediate term decline and may well be a home run on the tail side of the
coin. It tells the tale of vulnerability. I prefer selling vulnerable stocks
short and the homebuilders are at this point in time vulnerable. The action
displayed by the stock indicates that. Use the 50-day line to stop the loss.
Encana Corp
(
ECA |
Quote |
Chart |
News |
PowerRating) 43
Natural gas is rising at a
clip that provides enhanced profits for companies like Encana. ECA is in good
shape technically. It’s in a long term up trend that shows no sign of
concluding. Pick the stock up with a toe in the water. Buying it in here is
prudent. The stock is currently bouncing off the 50-day line and is heading for
the high point made the other day. A rise above 45.85 on a closing basis is the
signal to pick up more shares pyramiding the existing position. Place the stop
just under its 50-day line.
Jack S. Rothstein
Rothstein Investment Advisory Services, Inc.
3600 Chain
Bridge Road, Suite 200
Fairfax VA 22030
Phone
888-343-4825 — Fax 703-385-7232
www.jrmoney.com
— www.wealthcast.com
Jack Rothstein is the
President of Rothstein Investment Advisory Services, Inc. and is a 20-year
veteran stock trader and a money manager.
Mr. Rothstein also writes Wealthcast, a monthly newsletter about the technical
behavior of the markets. He has been quoted on Bloomberg, CNNFn, the Dick Davis
Digest and the Dow Jones Newswire. Since 1993, Mr. Rothstein also hosted
WealthCast, a radio show in the Washington DC area covering the stock market.