Stock Trading: Good Short Setups Emerging

Congress appears likely to pass some kind of bailout legislation after Monday’s stock market plunge. There have been loads of criticism for the way our representatives have reacted to the crisis. At the same time, none of the choices they face are particularly appealing. Vote for the bailout as is, and risk alienating their constituents, or, push for a better bill that focuses more attention on “main street”, and risk a full blown economic crash due to the delay. Personally, I think it has been encouraging to see our democracy function, and to know that people’s voices are at least being heard. At the same time, I still think we will end up with a bill that rewards those who created the problem and shortchanges the taxpayer.

The Senate votes on a bill Wednesday which will include a higher limit for insured bank deposits. It seems likely that the House and Senate will have a final bill passed in the near future. Which brings us to the market action of the past two days. The press is inaccurately reporting that the market selloff occurred on news that the bailout failed. Indeed, some of the drop did occur after the vote was complete. However, looking at the 10 day SPY chart, we can see that the market was in a downtrend from September 19 until today (Tuesday). Much of Monday’s drop occurred before the vote, and we have since regained nearly all of the ground lost since closure of voting on the bailout bill. Furthermore, today’s rally was on significantly lower volume than yesterday’s drop on all index charts.

I basically sat today out, and am expecting a bit more strength before we resume our downtrend. At the same time, I will be gradually moving from a high cash position into some short positions tomorrow, and will be looking for more short setups should the market continue higher on low volume. There are already a number of charts showing a bounce into resistance.

- Quanta Services (PWR) was up over 14% today on slightly decreasing volume. The price is also sitting just below the 200 day moving average. I started a short position today.

- TAM (TAM): Airlines are in trouble across the board. TAM rose 9% today on decreasing volume, and is starting to run into resistance. I am going to allow for a bit more strength here, and will be watching the intraday chart closely for signs of a resumed downtrend.

- ComStock Resources (CRK) rose almost 8% today on decreasing volume, and is sitting under the 200 day moving average and resistance around 52.50.

- Xilinx (XLNX) has been struggling to get through the 200 day moving average. It dropped on very heavy volume yesterday, and rose almost 3% today on decreasing volume.

- AutoNation (AN) is on the no-short list, but you can buy puts.

- DR Horton (DHI): Homebuilders are starting to show weakness. Note the volume yesterday versus today.

- Toll Brothers (TOL): Ditto.

Overall, most charts are not showing any great advantage long or short. That being the case, tomorrow (Wednesday) I may again spend more time at the beach and less time in front of the computer.

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Comment by ray

2008-12-11 01:10:56

Ilike to be amember and recieve stock to short every day

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