Saturday, July 17, 2010

Two short ideas for next week...

The NASDAQ index as shown above has been in a confirmed down trend since late April to now. There have been some very sharp rallies during the course of this downtrend three of which have actually triggered a change in trend by to confirmed uptrend. I am not convinced that we are anywhere close to starting a new uptrend. In fact the markets have been very overbought and now seem to be resuming the down trend with an obvious distribution day on Friday. I have been short ATHR since Thursday evening and I am still short and now up about 4% on the positions.

However, I believe that its not too late to initiate short term short positions and I will present two potential shorts in this post. These two short ideas are tech leaders AAPL and BIDU.

Notice that where as the NASDAQ has rallied powerfully from around July 1st, AAPL has only managed to grind sideways with down days coming on much higher volume than the few up days. AAPL has formed a sideways wedge and if the markets continue falling it will only be a matter time before AAPL breaks down from this wedge and drops to support around the $230 - $225 price level. The only caveat to this trade is that AAPL reports earnings next Wednesday. However, with all the complaints about the iphone 4, I do not see earnings forecast for the next quarter being strong as analysts would have been forecasting although earnings might be better than expected. So this could be a catalyst that causes AAPL's price to fall even further. Please that this is risky as AAPL could find a solution that satisfied this problem and this could cause the stock to rally.

BIDU has formed a rising wedge pushing up into resistance around the $78 price level. With the NASDAQ pulling back from overbought levels, BIDU could easily drop atleast to the $68 - $64 price support level making for a low risk, high probability swing trade. Again as with the AAPL trade, BIDU reports earnings next Friday and this could cause BIDU to gap up and invalidate the set up.

So if you decide to take any of these trades, PLEASE WATCH OUT FOR EARNING!!!

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