Three Things To Look For Before Shorting New Stocks
Looking to the indices, on Wednesday, the Nasdaq opened
firmer and initially rallied but began to sell off in early trading. However, it found
its low by mid-day and then rallied for the rest of the day. This action has it closing well and has it bouncing off its 50-day
moving average.
The S&P also put in a solid trend day higher after
dipping in early trading. This action puts it back above its 50-day moving
average.
So what do we do? After Wednesday’s
mother-of-all turnarounds, the big question now becomes is this a resumption of
the longer-term uptrend from lows or simply a corrective bounce from the recent
sell off. I’m cautiously optimistic but so far, I’m leaning towards the latter.
Why? Most sectors still look questionable to me. This is especially true in
technology. Further, most of the stocks generated by my scans look like better
shorts than longs. Therefore, I think the play could still be on the short
side. However, I wouldn’t get too aggressive in light of the
Wednesday’s strength. Further, before entering you probably want to wait for signs of weakness
in the overall market, the representative sector, and, of course, in the stock
itself. On the long side, if you played the bounce from the timing
signals (or bought index shares as a hedge against shorts), you might want
to scale out and trail a stop higher.
Looking to potential setups, L-3 Communications
(
LLL |
Quote |
Chart |
News |
PowerRating),
in the weak defense sector (actually a hybrid defense/communications
company), looks poised to resume its recent meltdown out of a pullback.
Northrop Grumman
(
NOC |
Quote |
Chart |
News |
PowerRating), mentioned recently and also in
the weak defense sector, still looks poised to resume its meltdown out of a
pullback.
Best of luck with your trading on Thursday!
Dave Landry
P.S. Reminder: Protective stops on
every trade!
“….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.
