Tuesday, July 13, 2010

Attractive short set ups...

Although my mind is very much bent on remaining in cash, there are two short set ups that I will definitely be keeping an eye on. These are DECK and CGA. Take a look at the chart of the NASDAQ below and then the charts of DECK and CGA below it.

In the instance of DECK, notice how DECK was exhibiting strength relative to the NASDAQ index (in fact I was long DECK from early to mid June) from the left of the chart until around the 21st of June. At this point DECK sold off very hard along with the market and under cut its previous pivot low set in early June. Also notice that where as the NASDAQ has rallied powerfully over the past six days DECK has coiled sideways into a pennant pattern. This is a strong clue that earnings to be announced next week could disappoint and lead to significant decline in price. So I plan to short DECK if it breakdowns from this pennant pattern.

CGA topped since December 2009 and has remained in a powerful down trend since then. Its price pattern overall is nothing out of the ordinary. The market indexes as the NASDAQ shows above have rallied over the past six days or so and so too has CGA. However, what makes this pull back an interesting short is the fact that CGA closed down near its lows for today while the NASDAQ rallied powerfully throughout the day today and closed near today's high. This price action leads me to believe that if the markets roll over tomorrow or some time this week then CGA could fall harder than the rest of the markets down to or past its pivot low set just above the $8.00 level. So if CGA breaks below today's low tomorrow then I will short CGA.

So the price action in these individual stocks in addition to the very over bought levels in the market indexes are the justification for my desire to short these two stocks.

That is my plan for tomorrow.

Good luck and good execution with your plan!

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