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Short Stocks Now

By Jeff Clark
Thursday, February 18, 2010

This is the best spot to put on a short sale I've seen in a long time.
 
When the S&P 500 broke the rising-wedge chart pattern to the downside back in mid-January (something we warned about here and here), the intermediate-term trend for stocks changed. The trend transitioned from what looked like a straight shot higher into a period of correction.
 
And during corrections, traders profit by shorting stocks.
 
But the decline from the rising wedge was so violent and so fast, there simply wasn't a good, low-risk entry point for a short trade – unless you anticipated the decline and went short ahead of time. Stocks quickly went from overbought to oversold. And anyone shorting into an oversold market runs the risk of getting caught in a violent bounce. Which is exactly what we've seen over the past few days.
 
Take a look...
 
 
 
The red lines on the chart indicate various support levels for the S&P 500. As each support level is violated, it becomes resistance for any bounce attempt. You can see how the market held support on the daily chart near 1,050 and has now bumped back into resistance around 1,100.
 
Here's how it looks on a shorter-term, 60-minute chart...
 
 
 
If the current correction has farther to go, which I think it does, then the S&P 500 should fall to one of the lower support lines – either around 1,020 or 1,000. The index is currently bumping up against resistance at 1,100. The resistance should be strong enough to hold back any further rally attempt.
 
Aggressive traders can short stocks here with the idea of buying them back as the index approaches one of the lower support lines – 80 to 100 S&P points lower. On the other hand, if stocks continue higher, short sellers can cut their losses if the S&P 500 makes a decisive move above 1,100 – say 1,105 or so.
 
That limits the risk to just five S&P points while the reward could be as large as 100.
 
You won't often find a more favorable short-selling setup than that.
 
Best regards and good trading,
 
Jeff Clark




In The Daily Crux
Market Notes
Home Depot hits a new high... the American dream lives on.
 
Pipeline shares begin a new leg up... Energy Transfer, Boardwalk Pipeline, Magellan Midstream hit new highs.
 
New highs for grocery staples HJ Heinz, ConAgra, Sara Lee, and Del Monte.
 
Earnings today... CBS, Dell, Hormel, Goodyear, DIRECTV, Wal-Mart.
Market Watch
Symbol Price
Change
52-Wk
S&P 500 1221.53 +1.3% +10.1%
Oil 38.31 +1.4% -0.6%
Gold 138.07 +2.1% +16.3%
Silver 28.60 +2.4% +53.6%
US-Dollar 80.67 -0.8% +8.1%
Euro 1.32 +0.6% -12.1%
Volatility 18.01 -7.1% -19.8%
Gold Stocks 581.56 +3.0% +17.0%
10-Year Yield 3.02 +0.7% -10.7%

World ETFs
Symbol Price
Change
52-Wk
USA 122.89 +0.3% +11.3%
Canada 30.50 +0.2% +16.2%
Russia 21.94 +1.4% +18.1%
India 37.85 +0.3% +22.3%
Israel 16.69 +1.3% +10.8%
Japan 10.64 +0.6% +6.5%
Singapore 13.73 -1.1% +18.8%
Taiwan 14.78 +0.4% +19.2%
S. Korea 57.31 +1.3% +23.4%
S. Africa 71.87 +1.4% +28.2%
China 44.42 -1.4% -0.6%
Lat.America 53.17 +0.7% +8.4%

Sector ETFs
Symbol Price
Change
52-Wk
Oil Service 137.59 +1.0% +18.9%
Big Pharma 64.14 +0.0% -3.2%
Internet 72.07 -0.1% +23.4%
Semis 16.22 +1.2% +29.4%
Utilities 31.28 +0.2% +1.5%
Defense 18.52 +0.1% +10.6%
Nanotech 10.03 +0.4% +1.6%
Alt. Energy 10.08 +1.3% -3.3%
Water 18.49 +1.0% +14.5%
Insurance 16.14 +0.4% +21.1%
Biotech 20.54 -0.2% +28.1%
Retail 19.70 +0.3% +30.2%
Software 24.79 +0.8% +25.9%
Big Tech 53.87 +0.3% +22.7%
Construction 13.10 +0.9% +15.7%
Media 13.64 +0.5% +26.0%
Consumer Svcs 67.39 +0.2% +24.5%
Financials 55.04 +0.3% +7.4%
Health Care 64.30 +0.1% +2.0%
Industrials 63.54 +0.5% +21.0%
Basic Mat 74.35 +1.1% +25.3%
Real Estate 55.32 +0.1% +25.0%
Transportation 91.77 +0.7% +26.9%
Telecom 22.59 +0.5% +17.8%

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