Commentary:After what has been a near vertical
rise from August lows, it looks like the general markets may be
taking a break. The past few days have seen some distribution, and
although the uptrend has remained firmly in place, it may be a good
time to reduce long exposure. One way to do this is by
increasingshortexposure, and the best types of
stocks to focus on in this case are stocks that have been
unable to participate in the recent strength. This lack of
participation shows an unwillingness on the part
of institutional investors to back such stocks, even at a
time when risk-taking is being rewarded.
Several stocks remain under
importantbasesdespite the strength shown by the
general indexes. While many traders tend to attempt picking a top
in runaway stocks, the safer play is to focus on stocks already
showing weakness.
Blue Nile(Nasdaq:NILE) is a perfect example of a stock
that has been unable to make any progress even though many of its
peers are outperforming. NILE fell under an important base in early
August, and has been trading in a fairly tight range under this
level since then. Every time it attempts to push back into its
base, sellers step in. In fact, NILE still has an unresolved gap
near $47.50 showing that sellers remain aggressive.
Urban Outfitters(Nasdaq:URBN) is another stock that has seen
sellers overwhelming buyers even in a strong environment. URBN
attempted to bottom after successfully holdingsupportnear $31 in September, but sellers
quickly appeared near $35 and sent URBN back to the bottom of its
base. The $31 level finally gave way, despite holding on several
occasions over the past few months. This is now a key level to
watch, as traders who were conditioned to buy this area are now
under water.
Source: StockCharts.com
Kirkland's(Nasdaq:KIRK) has been persistently showing
weakness since May, despite being one of the better performers in
the retail space earlier this year. Notice how sellers consistently
appear as KIRK tests its declining 50-daymoving average(shown in green). KIRK also broke
down under an important support level in August on a high
volumegaplower. Much like URBN, KIRK has
been unable to make any headway back into its base or the gap.
Sellers have begun to appear at even lower levels, and it appears
that KIRK may be headed back to its September lows.
Source: StockCharts.com
MEDIFAST
INCCommon Stock(NYSE:MED) has had a crazy ride in 2010 as
it rallied from the $15s in February through the $37 level in May.
Stocks that experience such a sharp run in a small time frame
typically enter a wideconsolidationas
market
participantsstruggle to find
fair
value. MED began this process in May and formed asymmetrical trianglepattern over the
subsequent five months. However, rather than clearing the
triangle and resuming its prior uptrend, MED has now broken under
the triangle, which may be signaling a reversal. The $25 level is
the area traders should focus on to see if MED can reclaim its
base, or if it is in fact reversing on longer time frames.
Source: StockCharts.com
Bottom Line The markets remain above support levels and continue to show
strength. As such, it makes sense to focus mainly on the long side
and remain aligned with the overall trend. However, traders should
always be prepared for multiple scenarios, and with the markets
showing a few warning signs, it remains prudent to have options in
case things turn sour. Focusing on weak stocks should allow traders
a larger margin for error if the recent strength
continues, while still providing a great trading
opportunity if the markets take a break.
While Matt, Steve and other members
here have the best charts and advice, it's always possible to find
other good setups with even free newsletters like this, or other
pages on the web. You just have to do additional TA using
your own chart indicators and various timeframes to see if the
patterns shown are legitimate, and have a good possibility of
follow-through in the future. I agree that their market
analysis is frequently hedged, but just looking at these 4 stock
charts, 2 are breaking down out of triangles, and the other 2 are
under previous support/now resistance. so 1, 2, or all 4 could
be good possible short trades if they play
out.
I agree with this analysis in the
newsletter: "The past few days have seen some distribution, and
although the uptrend has remained firmly in place, it may be a good
time to reduce long exposure. One way to do this is by
increasingshortexposure, and the best types of
stocks to focus on in this case are stocks that have been
unable to participate in the recent strength. This lack of
participation shows an unwillingness on the part
of institutional investors to back such stocks, even at a
time when risk-taking is being rewarded. Several stocks remain under
importantbasesdespite the strength shown by the
general indexes. While many traders tend to attempt picking a top
in runaway stocks, the safer play is to focus on stocks already
showing weakness." Matt and Steve have
pointed out here the flaws of calling tops or bottoms in the gold
market or general market, so the above wording seems to agree
with that philosophy. Have also seen several of the
best traders here consistently hedged, with some long, some short
trades to withstand the big swings in the market and huge gaps up
and down we've seen sometimes 2-3 times a week before the market
opens since April, which seems to be increasing again
recently.
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Title: Investopedia/Chart Advisor - 4
Posted by curtis on 20th of Oct 2010 at 09:56 pm
4 Weak Stocks In A Strong Market
Commentary:After what has been a near vertical rise from August lows, it looks like the general markets may be taking a break. The past few days have seen some distribution, and although the uptrend has remained firmly in place, it may be a good time to reduce long exposure. One way to do this is by increasing short exposure, and the best types of stocks to focus on in this case are stocks that have been unable to participate in the recent strength. This lack of participation shows an unwillingness on the part of institutional investors to back such stocks, even at a time when risk-taking is being rewarded.
Several stocks remain under important bases despite the strength shown by the general indexes. While many traders tend to attempt picking a top in runaway stocks, the safer play is to focus on stocks already showing weakness. Blue Nile(Nasdaq: NILE ) is a perfect example of a stock that has been unable to make any progress even though many of its peers are outperforming. NILE fell under an important base in early August, and has been trading in a fairly tight range under this level since then. Every time it attempts to push back into its base, sellers step in. In fact, NILE still has an unresolved gap near $47.50 showing that sellers remain aggressive.
Urban Outfitters (Nasdaq: URBN ) is another stock that has seen sellers overwhelming buyers even in a strong environment. URBN attempted to bottom after successfully holding support near $31 in September, but sellers quickly appeared near $35 and sent URBN back to the bottom of its base. The $31 level finally gave way, despite holding on several occasions over the past few months. This is now a key level to watch, as traders who were conditioned to buy this area are now under water.
Kirkland 's(Nasdaq: KIRK ) has been persistently showing weakness since May, despite being one of the better performers in the retail space earlier this year. Notice how sellers consistently appear as KIRK tests its declining 50-day moving average (shown in green). KIRK also broke down under an important support level in August on a high volume gap lower. Much like URBN, KIRK has been unable to make any headway back into its base or the gap. Sellers have begun to appear at even lower levels, and it appears that KIRK may be headed back to its September lows.
MEDIFAST INCCommon Stock(NYSE: MED ) has had a crazy ride in 2010 as it rallied from the $15s in February through the $37 level in May. Stocks that experience such a sharp run in a small time frame typically enter a wide consolidation as market participantsstruggle to find fair value. MED began this process in May and formed a symmetrical triangle pattern over the subsequent five months. However, rather than clearing the triangle and resuming its prior uptrend, MED has now broken under the triangle, which may be signaling a reversal. The $25 level is the area traders should focus on to see if MED can reclaim its base, or if it is in fact reversing on longer time frames.
Bottom Line
The markets remain above support levels and continue to show strength. As such, it makes sense to focus mainly on the long side and remain aligned with the overall trend. However, traders should always be prepared for multiple scenarios, and with the markets showing a few warning signs, it remains prudent to have options in case things turn sour. Focusing on weak stocks should allow traders a larger margin for error if the recent strength continues, while still providing a great trading opportunity if the markets take a break.
One leg inside the door and the other one is outside
Posted by skyscraper on 21st of Oct 2010 at 01:00 am
with bags in hand
4 short trade ideas look like good possiblilties
Posted by curtis on 21st of Oct 2010 at 06:15 am
While Matt, Steve and other members here have the best charts and advice, it's always possible to find other good setups with even free newsletters like this, or other pages on the web. You just have to do additional TA using your own chart indicators and various timeframes to see if the patterns shown are legitimate, and have a good possibility of follow-through in the future. I agree that their market analysis is frequently hedged, but just looking at these 4 stock charts, 2 are breaking down out of triangles, and the other 2 are under previous support/now resistance. so 1, 2, or all 4 could be good possible short trades if they play out.
I agree with this analysis in the newsletter: "The past few days have seen some distribution, and although the uptrend has remained firmly in place, it may be a good time to reduce long exposure. One way to do this is by increasing short exposure, and the best types of stocks to focus on in this case are stocks that have been unable to participate in the recent strength. This lack of participation shows an unwillingness on the part of institutional investors to back such stocks, even at a time when risk-taking is being rewarded. Several stocks remain under important bases despite the strength shown by the general indexes. While many traders tend to attempt picking a top in runaway stocks, the safer play is to focus on stocks already showing weakness." Matt and Steve have pointed out here the flaws of calling tops or bottoms in the gold market or general market, so the above wording seems to agree with that philosophy. Have also seen several of the best traders here consistently hedged, with some long, some short trades to withstand the big swings in the market and huge gaps up and down we've seen sometimes 2-3 times a week before the market opens since April, which seems to be increasing again recently.