A trading question: is NXG a good short candidate?

    Posted by junkie on 20th of Dec 2009 at 02:20 am

    For those who know how to trade (not perma bulls or bears, please!). NXG had just lost its MA(50)=3.00, its top was at 3.49 and its MA(200)=2.25. It closed at 2.90 on Friday. Its trendline support comes at about 2.50. <a href="http://stockcharts.com/h-sc/ui?s=nxg&p=D&yr=0&mn=9&dy=1&id=p77868502372">NXG daily chart is here</a>

    My question is, Is it a good candidate to short at this time? I expect to cover at 2.50 or when GDX is near its MA(200). What would be a good stop placement? I am thinking MA(20)=3.16. Is it too obvious for market professionals who know how to clip stops?

    What is a risk/reward ratio for this trade?

    I appreciate good solutions or valid input on this trading problem.

    Here's my biggest problem with

    Posted by user32 on 21st of Dec 2009 at 02:56 am

    Here's my biggest problem with this trade - it's still a bullish chart. Sure, the 20 day MA is pointed down, but the 50 day is pointing up and that's bullish. You'll notice that on this chart (and just about every other chart since March) that pullbacks to (or even below) upward-sloping 50 day MAs get bought. If you want to short a bullish chart (which I generally don't do), you'll need to do it much earlier than this. Or perhaps on a low volume bounce. Here's a strategy that works: when a stock pulls back to or below an upward-sloping 50 day MA (or some other key moving average) and then puts in a bullish candle or starts to base, that's a buying opportunity, with a close stop under recent lows. However, most people insist on shorting these situations, which is a mystery to me. You'll be wrong 3 or 4 out of 5 times if you bet against the moving average. Hope this helps!

    Thanks, Daniel! Mining stocks are

    Posted by junkie on 21st of Dec 2009 at 05:14 am

    Thanks, Daniel! Mining stocks are indeed in a bull market, so the trade would be a counter-trend. In my understanding, a break of the MA(50) is the key to note a weakness (pullbacks to the MA(50) are bought, as you noted). GDX is below the its MA(50), which tells me where the trend is going. Gerald Clifton had me learn to respect the GDX as the index.

    This is the first correction of the $USD since March, so it's a different situation for all other pullbacks. The break of the MA(50) occurred on the high volume, not seen before. You are probably right that I should wait for a bounce and pounce there.

    i would never short a

    Posted by 8899 on 20th of Dec 2009 at 09:51 am

    i would never short a stock that is priced under $10.00, too much risk

Newsletter

Subscribe to our email list for regular free market updates
as well as a chance to get coupons!