Saturday, April 24, 2010

Short idea for next week

I managed to discover yet another Chinese stock forming a long term topping pattern. The last one I documented was RINO. I shorted this one twice scratching on the first trade which was an option trade and making just over $200 on the second attempt. I should have held onto my first short position and still be short of RINO now. However, I made two mistakes on this trade. Firstly, I use options instead of stocks to short it. Secondly, I was risking way more than I was comfortable with at the time. So although RINO did not trigger any of my sell rules I sold out to put my mind at ease. Which was the right thing although the trade would have turned out to be very profitable thus far.

Anyways, the stock I am featuring this time around is SSRX. It has formed a head and shoulders pattern like RINO after a massive run up starting at the market bottom in March 2009. Take a look at the chart above and at the beautiful pattern it has formed.

SSRX looks good here for a position short on a break of the neckline around the $10.00 level where it has found support on four seperate occassions. Should SSRX crack this level the next major support in sight is not until $7.50. So combined with the relative weakness in the Chinese sector and topping action in many Chinese stocks plus a $2.50 potential profit; a stop loss less than $0.50 - $1.00 above the entry makes for a set up with excellent potential.

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