Believe it or not, there are still some great short setups out there. In order to find these, do not look in sectors that have been beaten down for the last 9 months. Instead, look to a sector such as Oil and Gas, which has recently rolled over, to find some stocks with some good downside juice left to be squeezed.
Petrohawk Energy Corporation [[HK]] is one such stock. Note the interaction between the peaks and the major moving averages. Also note how the stock is in a downward channel.
Getting short 3 days ago, at the 3rd failed attempt to regain the 50 day moving average, would have been about as perfect an entry as one could hope for. There is a divergence in the MACD, Stochastics had already rolled over, and volume has been weak as the stock tried to come off the bottom.
The criteria above make for a very reliable way to profit from shorting stocks. If one is patient, and searches charts of recently beaten down sectors, he will find that these setups appear frequently.
Amen.
when i tried to draw the channel on my chart I couldn’t get it to line up unless I unchecked log scale. Do you have any thoughts on using/not using log scale?
Bill says not to use Log unless your looking at long-term charts.
B-rad, I long time ago, probably 7 years or so, I read my first book on TA, by Schwager. In the book, Jack mentions something to the effect of that he doesn’t think it really matters which scale is used, as long as one decides which scale to use, and then sticks with it.
At the time, it made more sense to me to use a normal scale, so that is what I’ve always used.
Now that I’ve developed more skills, I can see the benefit in using a log scale, but at this point, I don’t see that it would make that much of a difference in my analysis.
B-Rad, I believe the straight trendlines in a non log chart become curves in a log chart. I can double check later tonight for you.
B-Rad, Yup, the math never lies… Straight trend lines on linear charts become curves on semi-log charts. What does that means for TA? Got me. I use curvey volatility bands instead. If I ever figure out a system that really works, I’ll post in the PG.
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Hey wood,
I have opened a short position when we broke through SP500 intraday lows on HK…Unfortunately there was a work emergency and I wasn’t available to cover off this monstrous rally.
How have this rally changed the outlook, and what are your target prices and stop losses?
I am thinking about holding this at least until we officially break through 50EMA or should I get rid off first thing?
Mike, had I entered this trade, I would have taken it around November 1st and would have likely covered today. I posted it more as an example of what a good short setup looks like, more so than a trade I was in. I will also use full disclosure about trades I’m in or am planning to take.
One important thing to remember, anytime you are shorting into an RSI2 sub 20, be careful. Similarly, anytime you are going long into an RSI2 greater than 90, be careful. The short-term reversals can be powerful.
My gut feeling is that you take your lumps on this one and move on. Volume and price action today on the indexes tells me that this rally is going to stick for awhile.
If you can exit early tomorrow without covering into a large gap up, you can always short it again later.